Fixed Income Strategist: Price Discovery Mode

Fixed Income
Strategist
Monthly April 2020
Price discovery mode
Our review of key topics influencing the taxable fixed income

landscape, with an assessment of relative value trends at the
sector and individual security level.

This report has been prepared by UBS Financial Services Inc. (UBS FS). Analyst certification and required disclosures
begin on page 26.
Fixed Income Strategist
Contents
03 Feature
05 FI tactical preferences
06 Allocations and recom-
mendations
08 US Treasury
09 Mortgage-backed securities
10 IG corporate bonds
11 High yield corporate bonds
Dear readers,
12 Preferreds
13 Taxable municipals
14 Chartbook
22 Detailed asset allocation In this Fixed Income Strategist, "Price discovery mode," Barry
23 Disclaimer McAlinden takes on the lead article and discusses the historic mar-
ket moves witnessed in March.
Authors The overall market impact is discussed, including which sectors felt
the brunt of two exogenous shocks coming from the COVID-19
Leslie Falconio spread and oil price wars. We review not only those sectors which
leslie.falconio@ubs.com represent relative value--for in today's market place there are
212.713.8496 many--but more importantly which asset classes offer an attrac-
tive balance of total return, while also providing principal protec-
Barry McAlinden, CFA
barry.mcalinden@ubs.com tion and capital preservation.
212.713.3261
We review our sector allocations and outlook over the next several
Kathleen McNamara, CFA, CFP months, given our expectation of lower, but continued, volatility
kathleen.mcnamara@ubs.com ahead. This includes the upcoming US Treasury supply and the
212.713.3310 impact on the shape of the yield curve.
Frank Sileo, CFA As always, thoughts and comments are welcome.
frank.sileo@ubs.com
212.713.4824
Daniel Kelsh
daniel.kelsh@ubs.com
212.713.3959
Leslie Falconio
Senior Fixed Income Strategist
Editor UBS CIO
Thomas McLoughlin
thomas.mcloughlin@ubs.com
212.713.3914
CIO GWM 8 April 2020 2

FEATURE
Price discovery mode

Barry McAlinden, Leslie Falconio
A reference point for years to come Monetary and fiscal response facilities, and a loan facility (TALF) that
High-quality fixed income assets pro- The Federal Reserve responded aggres- will buy bundles of assets secured by
vided portfolio stability for investors up sively to the abrupt contraction in credit auto loans, credit cards, student loans,
until early March, with pricing staying availability with ample injections of and loans backed by the Small Business
firm even as equities had already de- liquidity. As Chair Jerome Powell de- Administration. The Fed will also allow
clined. However, the subsequent scribed it, the Fed wanted to "create a agency CMBS into the TALF program.
plunge in oil prices and surge in bridge to another place of economic When asked about future firepower,
COVID-19 infections pushed bond strength." We're seeing monetary poli- Powell stated: "We’re not going to run
markets into a tailspin. The trading days cy being done on a scale not seen since out of ammunition; that doesn’t hap-
that ensued witnessed indiscriminate the financial crisis– and the Fed is argu- pen."
selling caused by deleveraging and a ably acting faster and more aggressively
flight to cash, which impaired credit than it did 12 years ago. The federal Funding stresses ease
channels. Sharp price declines also led funds target rate was lowered by These policy responses paved the way
to historically large outflows from both 150bps down to a range of 0–0.25%. for fixed income risk assets to end
exchange-traded funds (ETFs) and mu- On 23 March, the Fed announced an March on a stronger note as sector
tual funds, with certain ETFs trading at unlimited amount of quantitative eas- returns have recouped some of their
deep discounts to their net asset values. ing (QE) in Treasuries and agency mort- corona-crisis-related losses. Important
Short-term funding markets became gage-backed securities (MBS) and new for market functionality, interbank and
dislocated, and the large corrections in programs to purchase corporate bonds global funding strains have eased
corporate credit and equity markets in the primary and secondary markets. somewhat, and secondary market trad-
spilled over to the US Treasury market ing activity has improved, with bid-offer
in the form of higher bid-ask spreads On the legislative front, the CARES Act spreads tightening. Fixed income funds
and higher yields. TIPS breakeven infla- was signed into law on 27 March. With have witnessed some periods of in-
tion took a plunge. Very short invest- the Treasury pledging USD 454bn to flows, and other dislocations such as
ment grade (IG) corporate bonds with cover any losses and permitting lever- ETF discounts and inverted IG credit
AAA ratings saw their credit spreads age funds on a 10 to 1 basis, the Fed curves have somewhat abated.
shoot up from as low as 10 basis points has the capacity to lend USD 4.5tr
(bps) in late February to 260bps on 20 across a wide range of markets. This Price discovery will persist while
March. includes a money market mutual fund uncertainties exist
liquidity facility, a commercial paper Although market conditions are no
funding facility, the corporate bond longer hamstrung by indiscriminate
Credit stress has improved but elevated levels remain The Fed's balance sheet has rapidly expanded
Spread, in bps In USD bn
400 7,000
350
6,000
300
250 5,000
200 4,000
150
3,000
100
50 2,000
0 1,000
(50)
03-Jan-20 03-Feb-20 03-Mar-20 03-Apr-20 0
2006 2008 2010 2012 2014 2016 2018 2020
IG corporates CP 90 day LIBOR OIS Muni 10-yr A Revenue
Source: Bloomberg, UBS, as of 3 April 2020 Source: Federal Reserve, UBS, as of 1 April 2020

selling, credit risk premiums remain Rating agency downgrades shouldn't be fiscal stimulus. We anticipate strains
elevated given the uncertainties associ- the primary cause of any market disrup- subsiding on the short end of the curve
ated with the depth of this economic tion going forward, in our view. as the commercial paper (CP) rate falls
downturn. Credit spreads stand at levels and the Libor rate moves closer to the
that have only occurred during past The decline in expectations for short- fed funds rate. We expect the fiscal and
recessionary periods. While this makes term rates, as measured by the Libor monetary firepower to continue, and
credit risk assets attractive, it is difficult forward curve, has an impact on float- scaling into quality risk assets will prove
to assess whether spreads currently ing-rate assets such as senior loans and to be a prudent risk-reward strategy.
reside at the right levels when the frame fixed-to-floating (F2F) preferreds. In We continue to prefer short-end IG
of reference is a moving target. The both cases, spreads have widened, put- corporates, and although we maintain a
extent of the economic deterioration ting severe pressure on security prices. small overweight in HY given its higher
will depend on the duration of shelter- Senior loans are trading in the mid-USD risk premium, investment grade bonds
in-place orders. While we see a strong 80 price, while F2F preferreds are being remain the cheaper alternative from a
chance that peak credit spreads are priced to their perpetual maturities ra- historical spread ratio perspective.
behind us, especially within investment ther than their near-term call dates.
grade, we cannot rule out a downside Given ample spread, however, we don't Among the higher-quality sectors, our
scenario where spreads retest or even recommend investors abandon these preference is for TIPS. Given the sharp
breach their wide prints on 23 March. segments even with short rates likely to decline in oil prices, we believe a rever-
remain low for an extended period. sal in trend will occur over the next sev-
When considering credit fundamentals, eral months, and we remain overweight
a natural deterioration occurs in eco- Outlook and preferences TIPS with the expectation that inflation
nomic downturns as company operat- Credit spreads are likely to remain at will trend toward the 5-year/5-year for-
ing profits are pressured. Our US equity elevated levels with greater differentia- ward inflation rate over the long term.
colleagues expect S&P 500 earnings to tion occurring among higher- and low- For other sectors, we see better value in
decline by 21% this year before increas- er-quality issuers. Current prices for agency MBS over agency debt, but go-
ing by 20% next year. This will nega- taxable credit are already incorporating ing into short-end IG represents the
tively affect company credit metrics, a rise in credit rating downgrades for best value, in our view.
causing leverage to spike higher for certain IG issuers and more defaults
many companies. The rating agencies among certain high yield (HY) issuers. In lower-quality credit, we see recovery
use a "through the cycle" approach to Proper credit selection is necessary to potential in senior loan prices once
assigning ratings, particularly for IG distinguish the opportunities from per- greater clarity is gained on the magni-
issuers where the rating horizon can sistent problems. Similarly, our munici- tude of the current default cycle.
span multiple years. That said, when the pal colleagues suggest that in the Among preferred securities, CIO cur-
outlook for underlying business drivers weeks ahead, credit quality spreads rently favors fixed-for-life coupons as
materially decline—such as oil prices or between lower-rated HY munis and IG the conditions that are pressuring float-
auto sales—this can lead to down- munis will continue to widen as inves- ers and F2Fs are likely to persist. We
grades, particularly for the weakened tors hone in on credit concerns. continue to factor Libor fallback lan-
industry players. The rating agencies guage into our F2F preferred security
have already acted quickly on down- Although economic fundamentals will recommendations despite the uncer-
grades and will continue to do so. stay weak over the next several quar- tainty over the timing if the scheduled
However, market spreads compensate ters, we see a light at the end of the phase-out of Libor in 2021.
for this development to a large degree. tunnel given the recent monetary and
The spread ratio between IG corporates and HY shows IG the HY bonds and senior loans performing in line with one another
cheapest in a decade Total return YTD, 31 Dec 2019 = 100
HY and IG corporate spread ratio: Above the line, HY is cheap; below it, HY is 105
rich versus IG
4.5 100
4.0 95
90
3.5
85
3.0
80
2.5
75
2.0 31-Dec-19 31-Jan-20 29-Feb-20 31-Mar-20
2008 2010 2012 2014 2016 2018 2020 HY bonds Senior loans
Source: ICE BofA, UBS, as of 3 April 2020 Source: ICE BofA, UBS, as of 3 April 2020

US Fixed Income Preferences
Legend
Overweight: Tactical recommendation to hold more of the asset class than specified in the UBS House View Detailed asset allocation tables, 7 April 2020
Underweight: Tactical recommendation to hold less of the asset class than specified in the UBS House View Detailed asset allocation tables, 7 April 2020
Neutral: Tactical recommendation to hold the asset class in line with its weight in the UBS House View Detailed asset allocation tables, 7 April 2020
NOTE: TACTICAL TIME HORIZON IS APPROXIMATELY SIX MONTHS, AS OF 7 APRIL 2020

GRAPHIC PERTAINS TO THE HOUSE VIEW MODERATE RISK TAXABLE ASSET ALLOCATION

Taxable allocations &

recommendations
We updated our taxable fixed income asset allocation table to reflect the changes in
the strategic asset allocation in UBS House View and the updated capital market as-
sumptions. Our goal with this table is to provide investors with a more detailed road
map of UBS House View.
US taxable fixed income allocation Conservative Moderate Aggressive
Treasuries We are underweight nominal US Treasury with a preference for US TIPS securities. The recent
move by the Fed has pushed yields below 1.0% in the 10-year. We interest rates will rise ove 32.5 16.0 5.5
the next few months.
Short 17.5 7.0 0.0

Intermediate 7.5 4.5 0.0
Long 7.5 4.0 5.5
TIPS We remain overweight TIPS with a preference for the 5-year area of the curve. Although WTI oil
has declined given concerns over the virus,we believe the recent action taken by the Fed will
push inflation expectations higher over the next few months. 9.5 10.5 4.0
Short 3.0 3.3 0.5

Long 1.5 1.5 1.5
Agency debt We are underweight agency debt versus MBS and IG corporates. Lower liquidity and tigher
spreads reinforces the better carry and total return view with other investment grade spread
product.
9.0 6.0 0.0
Short 6.5 3.3 0.0

Long 1.0 0.7 0.0
Mortgage backed After spreads widened out as volatility increased and interest rates fell due to the Corona scare, 18.5 22.8 12.0
we remain neutral but positive on the sector as liquidity, AAA credit, and cheap to corporates
securities remain in the sectors favor as household balance sheets remain solid.
Short 8.0 10.3 3.0
Long 2.0 0.2 2.5

Allocations and recommendations (cont'd)
US taxable fixed income allocation Conservative Moderate Aggressive
MBS/Securitized MBS credit has outperformed corporates the first month of the year. Although we anticipate this to
continue we remain neutral until volatility subsides with a preference for Agency and non agency
Products CMBS.
9.0 10.0 12.0
Short 4.0 5.0 3.0

Long 1.0 0.1 0.0
Investment grade We are neutral on IG corporate bonds. We expect spreads to remain elevated around current
levels in the weeks ahead but we foresee eventual spread improvement from these historically
corporates wide levels. We see opportunity in bonds within the five year maturity range that will be targeted 10.0 12.5 13.0
by the Fed's corporate bond purchase program, which should prove less volatile in case of growing
risks.
Short 4.0 5.7 4.0

Long 3.3 3.4 4.5
High yield We are overweight on HY bonds. Performance in March 2020 suffered along with broader risk
assets and reset the risk premium available to investors. Notably, BB credit has decoupled from
corporates BBB, with the rising spread differential creating a more attractive entry point. B credit performance
was dragged lower by market volatility and weakness in the energy sector creating opportunity for 4.0 11.5 34.0
added beta. We expect an increase in the default rate and believe that fundamental credit analysis
is paramount in the current environment.
By credit rating
BB-rated We have a modest underweight BB’s (vs B’s). BB spreads have reset wider following recent volatil-
ity, presenting a more attractive entry point and creating some potential for returns above coupon
4.0 5.5 5.5
income. However, we would characterize current levels as affordable, rather than cheap.
B-rated We have a modest overweight in B’s (vs BB’s). B-rated credit carries greater allocation to energy
issuers that are exposed to commodity prices. We believe the energy component of B-rated credit
has been oversold weighing on performance for the tier of credit. We expect WTI prices to re- 0.0 6.0 28.5
bound in 2020 with corresponding upside potential in commodity exposed names.
Taxable We have slight to moderate underweight positions on taxable municipals but see room for posi-
tioning these as a carve-out exposure within an investors' government fixed income allocation.
municipals 4.5 3.0 1.5
Preferred We have moved back to neutral on preferreds, following significant spread widening in late Febru-
ary. We continue to favor high coupon fixed rate coupons and select fixed-to-floats (at least four
securities years of call protection, high resets, and strong prospectus language regarding floating-rate cou- 1.5 2.0 6.0
pon calculation in the absence of Libor). These characteristics should mitigate volatility if yields rise
due to higher risk premiums (near-term) or potentially or inflation concerns (longer-term).
Bank loans We are overweight senior loans as a carve-out exposure within an investors' high yield bond
allocation. The repricing wave should lose momentum and we expect the drag on coupons to
diminish, but not disappear in the months ahead. 1.5 4.5 12.0
Note: See Appendix for information regarding sources of strategic asset allocations and their suitability, investor risk profiles, and the interpretation of the
suggested tactical deviations from the strategic asset allocations.
Source: UBS, WMA AAC, as of 7 April 2020

US Treasury
Multiple programs have been put in place to facilitate buy T-bills as a means to park cash while awaiting better
both liquidity within the financial markets and lending entry points, or to cover monthly payroll expenses.
within the banking sector to avert a longer-than-expected
downturn in the US economy. With the Treasury pledging We do expect a slight steepening of the yield curve (i.e.,
USD 454bn to cover any losses, the Fed, leveraging the short end outperforms the long end) given the Fed's zero
Treasury funds 10-to-1, has the capacity to lend USD lower bound. However, in the end, this steepening will not
4.5tr. be material, but the yield curve will continue with its up-
ward sloping trend.
However, nothing is for free, and we are expecting large
Treasury issuance in the second quarter of the year. We Tipping over
anticipate that the Treasury needs to raise a great sum of The financial markets were not kind to Treasury Inflation
money in very short order. All told, we expect net Treasury Protection Securities in March. Not only did both exoge-
issuance excluding Fed purchases to be a stunning USD nous shocks—COVID-19 and the oil price wars—push
1.4tr in 2Q. However, the majority of this issuance will be down inflation expectations via the breakeven inflation
in the short end of the curve, i.e., T-bills. It is estimated rates, but the heightened fear in the market strengthened
that the net T-bill issuance in 2Q will be a positive USD the demand for nominal Treasury versus TIPS.
942bn. After accounting for Fed purchases in the long Although the TIPS index is returning over 4% this year,
end, however, we expect net issuance for Treasury notes they have not kept up with their nominal counterpart. Both
and bonds to be approximately negative USD 285bn. 5- and 10-year breakeven inflation rates remain too low in
Although we think the amount of buying via the Fed may our view. Today, the inflation risk premium—a measure
pull back a bit as liquidity returns, we doubt that longer- within the breakeven inflation rate—is the most negative
end interest rates will move meaningfully higher than to- since the Lehman crisis (below). This indicates the market is
day's level of 0.67%. UBS is forecasting 0.9% by year- expecting deflation for an extended period. We disagree.
end. Rising 10-year yields would only push the mortgage The majority of the decline in breakeven spread is due to
rate higher, likely restricting the economy as consumer the collapse of WTI oil from USD 50/bbl to USD 20/bbl in
mortgage payments rise. This is the exact opposite result two weeks.
the Fed is hoping to achieve with its recent quantitative Although we do not believe inflation will move to the Fed
easing program. target of 2% for at least a year, the inflation expectations
Our expectation for T-bill yields is they will more than like- priced in today are simply too low. Rising commodity pric-
ly not remain negative given the large amount of issuance es, a zero lower bound from the Fed, and trillions worth of
in this part of the Treasury curve. A positive yield does not policy measures that will increase the deficit are all infla-
mean a high yield for this sector of the curve. Money tionary. We continue to recommend an overweight in TIPS,
market funds, investors, and corporations will continue to particularly the five-year area of the curve.
The inflation risk premium is pricing in a deflationary Correlations between WTI oil price and the 5-year BEI are
outlook declining but remain high
In bps; Inflation risk premium (lhs); liquidity premium (rhs)
1.20
50 0
1.00
30 (5)
0.80
10
(10) 0.60
(10)
(30) (15) 0.40
(50) (20) 0.20
(70) (25) 0.00
(90)
(30) -0.20
(110)
(35) -0.40
(130)
(150) (40)
2005 2008 2011 2014 2017 2020 30-day rolling correlation between WTI and 5-year BEI
10-year inflation risk premium 10-year liquidity premium Source: Bloomberg, UBS, as of 7 April 2020
Source: Bloomberg, UBS, as of 31 March 2020

Mortgage-backed securities
With the Fed back to buying agency MBS, the “follow the Fed” consumers take the option simply to have the ability to not pay
mentality will be in full force over the coming months, as was their mortgage for a few months. Again, as a whole, this won't
the case during the global financial crisis. We are a bit cautious, impact the investors of AAA MBS, but it could impair mortgage
however, on current coupon mortgage spreads versus Treasury. servicers who are responsible for the cash flow shortfalls. This
The Fed’s MBS purchases is not consistent—there are two dif- concern will be witnessed in the GNMA sector where most ser-
ferent sides to the MBS story, and both will have a meaningful vicers are nonbank institutions. In fact, the nonbank share of
impact on the outlook for the mortgage market, and in particu- GNMA origination is 88%. Most GNMA loans have been issued
lar mortgage rates. by smaller nonbanks, which could cause some short-term stress.
On one side, the large margin calls in the mortgage REIT uni- We have always recommended conventional (FN/FH) over GNMA
verse as agency MBS spreads spiked was subdued by the Fed’s due to the first-time homebuyers’ erratic prepayment trends and
large buying of the sector under its renewed QE program. This higher potential delinquencies. We continue with this theme and
program also has the aim of lowering 30-year consumer mort- prefer funds, ETFs, or the 4.5% coupon within single securities
gage rates, which have remained stubbornly high as mortgage allocations.
spread to Treasuries stayed elevated. As MBS spreads collapsed
under billions of dollars of Fed buying, the stress shifted to the CMBS
mortgage servicer side—i.e., the lenders. We have recommended agency CMBS over non-agency CMBS
throughout the past year. The rise in the multifamily sector has
Agency MBS are used as a hedge to mortgage loans on ser- given investors ample supply, while remaining cheap relative to
vicers’ balance sheet, resulting in servicers being "short" the overall agency MBS. The illiquidity within the market hit agency
sector. With the sudden outperformance, margins were being CMBS as well. This prompted Fed action, with the unlimited
called within the mortgage originator universe. As a result, the purchase of agency CMBS. This backstop will support the multi-
Fed lowered its mortgage purchases. Although MBS offers value family mortgage market by providing liquidity, reducing mort-
relative to Treasury, we anticipate this “push me, pull me” to gage rates, and thus lowering the agency CMBS risk premiums.
continue within the MBS market. We are therefore neutral the Spreads have contracted from their wide in both agency and
sector. non-agency CMBS.
Mortgage forbearance may create more volatility ahead. Agency Without question, private label CMBS offers much more relative
MBS are AAA assets and essentially guaranteed by the US gov- value opportunity if the economy begins to recover by 4Q. We
ernment, so principal and interest will be paid and capital would scale into the sector for a longer-term hold. For investors
preservation will remain intact. However, the current forbear- looking for a little less potential total return but an increase in
ance rules contain few checks and balances to ensure that those liquidity and capital preservation, sticking with the agency over
receiving forbearance are only those that truly need it. In other non-agency CMBS sector is the wiser strategy.
words, more than likely, a moral hazard will take place where
US 30-year mortgage rates stays stagnate as MBS spreads rose Both non-agency and agency CMBS have widened
Current coupon MBS to TSY spread, in bps (lhs); HPA and 30-year mortgage over the past month. Although non-agency CMBS is
rate, in % (rhs) cheaper we prefer the credit protection with Agency.
Non-agency CMBS 5-year spread, in bps (lhs); Agency CMBS 5-year
140 7.0
130
spread, in bps (rhs)
6.5
120 6.0 160
340
110 5.5
100 290 140
5.0
90 120
4.5 240
80
70 4.0 190 100
60 3.5
140 80
50 3.0
Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Apr-20 90 60
MBS CC spread Home price appreciation YoY
40 40
30-year mortgage rate 2012 2013 2014 2015 2016 2017 2018 2019 2020
5-yr AAA private label cmbs spread 7-year Agency CMBS
Source: Bloomberg, UBS, as of 7 April 2020
Source: JPM, UBS, as of 3 April 2020

Investment grade bonds

Steeper IG curve Fed's corporate bond buying facilities
The fiscal package and the Federal Reserve's announcement The two programs include a Primary Market Corporate Credit
on 23 March that it will purchase investment grade (IG) cor- Facility (PMCCF), a credit facility to purchase corporate bonds
porate bonds have helped restore a certain degree of nor- directly from the issuer, and 2) Secondary Market Corporate
malcy into the IG market. Credit curves that were inverted Credit Facility (SMCCF), a credit facility to purchase eligible
have steepened, and spread levels have moved from unfath- corporate bond ETFs investing in IG corporate bonds in the
omably wide (i.e., factoring in a large illiquidity premium on secondary market. Eligible issuers are US companies with
top of a recession) to understandably wide levels (i.e., spread material operations in the US and rated at least BBB-/ Baa3
levels are factoring in a recession). These programs, however, (by at least two rating agencies if rated by more than one).
cannot stem the negative actions that credit rating agencies Bonds must have a remaining maturity of not more than four
have already taken and will continue to take. years under PMCCF and not more than five years under
SMCCF. Maximum sizes per issuer are set at 10% of its max-
Downgrades to continue imum outstanding bond volume over the last year.
Despite the noise created by downgrades, they are a normal
part of an economic down cycle, and the anticipation for Outlook
negative rating actions is a reason why IG spreads stand at In our view, the corporate bond purchase program is a
elevated levels. According to Moody's, about 4.4% of BBB strong measure to mitigate adverse market developments
rated issuers will experience a credit rating downgrade to BB and ensure funding for investment grade companies. Spread
or lower during any given one-year period that spans the levels are currently at 303bps (ICE BoA US Corp Index as of 6
past 50 years. Applying this to the USD 3.3tr stock of BBB April). Taking the 2001-2002 period (a non-financial down-
rated bonds gives a fallen-angel estimate of about USD turn where spreads peaked at 272bps) as a basis, credit
145bn. This will likely prove too low for 2020 volumes, but spreads appear already to be pricing in a recession. Hence,
we've already witnessed over USD 100bn in IG to high yield we believe IG corporate bonds offer an attractive entry level
(HY) downgrades, or so called "fallen angels," year-to-date. for investors. We see opportunity in bonds within the five
This compares to the Street's estimates for full-year fallen- year maturity range that will be targeted by the Fed's corpo-
angel volume in the USD 150bn (low) to USD 300bn (high) rate bond purchase program.
range. But for the most part, the bonds of those issuers that
screen as potential fallen angels are already trading at high-
yield-like spread levels. This means these potential down-
grades are largely being priced in, which limits further dam-
age, should they occur
IG spreads are at recessionary levels The Fed's corporate buying announcement steepend the IG
Spread, in bps curve
700 Yield, in %
600 5.0
4.8
500
4.6
400 4.4
4.2
300 4.0
200
3.8
3.6
100 3.4
3.2
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 3.0
1-3 year 3-5 year 5-7 year 7-10 year 10+ year
3/23/2020 4/6/2020
Source: ICE BofA, UBS, as of 6 April 2020
Souce: ICE BofA, UBS, as of 6 April 2020

High yield corporate bonds

In 2020, the US high yield (HY) market has produced a year- support for the economy is robust, how and when that will
to-date return of –14.9%. This includes a 1Q20 return of – benefit different companies is an open question, and the
13.1%, the worst quarterly performance since 4Q08. It is ability for weaker issuers to access capital markets may be
worth noting that performance through month-end February challenged in the interim. This is tantamount to saying that
was –1.5%, demonstrating the suddenness and magnitude diligent credit work on single names is of upmost importance
of the HY sell-off in March due to growing uncertainty amid uncertain economic prospects as we expect that de-
around COVID-19 and global trading levels for oil. The ener- faults will rise as a result of this environment.
gy sector led underperformers, losing approximately 40% of
market value in 1Q20. As noted in the lead article, policy Looking ahead
responses enacted in late March injected liquidity into fixed At current levels, HY presents good value to long-term-
income markets, triggering a relief rally in risk assets and oriented investors. While spreads may widen with negative
positive weekly flows to HY funds. economic data, today is an attractive entry point for names
carrying reduced threat of default. Conviction in HY bonds is
What are we focused on? likely to emerge after investment grade markets fully normal-
Despite the Fed actions and recent rally, forecasting returns ize. BBB credit has rebounded in the last two weeks, but still
in HY credit remains an elusive target. While the liquidity trades at levels not seen in over a decade. That differentia-
crisis seems to have passed, concern shifts to the credit com- tion will cascade through HY, with BB credit experiencing
ponent of risk in the face of challenging economic data. The support first given its relatively lower potential for default.
pace and magnitude of current events are unlike anything
we have encountered before. The US experienced approxi- In the leveraged loan market, there is a significant technical
mately 10mn initial jobless claims in the two most recent influence at play. Generally speaking, collateralized loan obli-
readings, an unprecedented surge that is likely to be an on- gations (CLOs) are restricted from holding greater than 5–
going trend and leaves open questions of how long and se- 10% of assets in CCC rated credit. While CLOs are spread
vere of a recession may result. vehicles seeking to take incremental credit risk to expand
their margin, there is heightened sensitivity around mid-to-
HY issuers may be assigned speculative ratings for a variety low B rated credit due to the operating constraint and the
of deficiencies in their business model. Having a realistic view potential for downgrades.
of the potential length and severity of the current economic
shock is critical for determining how these deficiencies may
come into focus with individual issuers. While government
HY performance crashed in March due to COVID-19 and Spread widening was experienced across the credit
trading levels for oil spectrum
Daily year-to-date performance, in % Daily spread levels, in bps
5.0%
1,200
--
1,000
(5.0%) 800
(10.0%) 600
(15.0%) 400
(20.0%) 200
(25.0%) 0
2-Jan 23-Jan 13-Feb 5-Mar 26-Mar 1/2/2020 2/2/2020 3/2/2020 4/2/2020
BBB BB B
Source: BAML, UBS, as of 7 April 2020 Source: BAML, UBS, as of 7 April 2020

Preferred securities
In search of value are select pockets of value opportunity emerging, especially
While the preferred sector remains an underweight in the in USD 25 par fixed-rate coupon preferreds.
House View Yield-Focused portfolios, we moved from an
underweight to a neutral position in last month's Fixed In- On the other hand, the backdrop is more challenging for
come Strategist. This move was based on the significant wid- floating-rate preferreds and fixed-to-floats (F2Fs) approach-
ening in yield spreads that had occurred in February (and that ing their first call date. We have become increasingly more
accelerated in March), which provided better entry points cautious on these given the likelihood that Libor remains very
among preferreds from high-quality issuers and with good low for the foreseeable future, reducing the likelihood that
structural characteristics (see Fixed Income Strategist, “Rear- these F2Fs get called (extension risk) and instead have their
ranging risk," 4 March 2020). coupons reset lower. This against a backdrop in which inves-
tors want higher yields (wider credit spreads).
Valuation improvement has been driven by aggressive repric-
ing of risk throughout all asset classes as economies globally From a technical perspective, floaters and F2Fs approaching
attempt to contain the spread of COVID-19. The flight to first call date are evaluated based on their reset spreads. Giv-
quality has led to a plunge in Treasury rates. But the benefit en the spike in yield premiums, the market is calling for high-
of lower rates has been overwhelmed by the risk repricing er reset spreads on floaters and higher coupons on fixed-rate
and higher yield premiums (credit spreads). Spread compres- securities. For example, Citigroup, Morgan Stanley, and
sion was a major performance driver last year when pre- Goldman Sachs all issued new bonds with 10-year maturities
ferreds generated returns of 15–20%, outpacing most other last month. The coupons on these new bonds were all 100–
fixed income sectors. But spreads aggressively reversed in 150 basis points higher than they are on bonds that these
February and March. Preferreds underperformed most sec- same banks issued earlier in the year. Similarly, given the
tors in the first quarter. surge we've seen in market yields, new fixed-rate bank pre-
ferreds would likely need to have coupons of about 6% and
We have also seen a sharp reversal in another major support new reset spreads would be probably be in the 500bps area.
last year: ETF flows. The USD 25 par preferred market is rela- But there are very few floaters and F2Fs with reset spreads in
tively small—about 15% the size of US high yield. When that area, so prices have been driven lower. They will likely
inflows are strong, they provide a major support which at continue to experience pressure until we see a reversal in
times represents "forced buying" (i.e., these are indexed those trends. Market yields need to fall back toward levels
funds). Conversely, when they flip to outflows, it can have a that were prevalent prior to the current crisis and we need to
materially negative effect and create "forced selling." There see short-term rate expectations begin to rise.
Preferreds gave back much of last years gains ETF outflows continue to add pressure
Asset flows, in USD mns
20%
600
15%
400
10%
5% 200
0% 0
-5% (200)
-10%
(400)
-15%
(600)
-20%
USD 1000 USD 25 par High Yield IG EM USD Sr. Loans Muni US Gov't
par Preferreds Corporates Bond (800)
Preferreds Apr-18 Aug-18 Dec-18 Apr-19 Aug-19 Dec-19 Apr-20
2019 1Q20 Mar-20
Source: Bloomberg, ICE, UBS, as of 31 March 2020

Taxable municipal bonds

Taxable muni spreads move higher on virus concerns New issue muni market stalls amid high market volatility
Since 28 February, spreads on taxable munis spiked higher as In the first two months of 2020, the market share of taxable
investors became increasingly concerned over the coronavirus munis had climbed by 25% compared to the same time one
outbreak. As a point of reference, spreads on taxable munis year earlier. This increase in the pace of taxable muni new
now sit at 228bps, up from only 95bps at the end of Febru- issuance reflected a pickup in advance refundings of tax-
ary. By comparison, the spread widening seen in the corpo- exempt debt given historically low US Treasury yields. At the
rate debt market occurred at a more rapid pace (to 303bps same time, the growth in tax-exempt issuance had been much
from 130bps). Bear in mind that the much smaller taxable slower.
muni market often does not participate in the much wider
swings seen in the credit markets (see chart). The current That said, in the wake of the coronavirus outbreak, many new
pattern proves no exception (see chart below). issue pricings were placed on hold, reflecting extraordinary
market volatility. In March, taxable muni new issue volume
Munis hold up better than corporate debt amid market totaled only USD 2.9bn and tax-exempt issuance stood at less
sell off than USD 14bn, as some examples.
In March, both taxable munis and tax-exempt munis held up
a bit better than their investment grade corporate debt coun- Texas to test taxable muni market
terpart on a total return basis. As a point of reference, taxa- In the midst of a market that is largely of hold for primary
ble munis lost 6.1% last month, holding up better than the market tax-exempt bond deals, Texas plans to test the taxable
results posted by corporate bonds (-7.5%) by a modest municipal bond market this week. On Tuesday, April 6,
amount over the same time frame. And, at the same time, Texas Public Finance Authority is scheduled to bring a USD
the losses seen in the tax-exempt municipal bond market 493mn unlimited tax general obligation taxable municipal
were more limited (-3.8%). bond deal to market. Market participants will be closely
watching to see what level the deal can clear the market amid
Taxable munis show flat performance year-to-date volatility. The bonds are rated AAA by both Moody's and S&P
Despite witnessing some losses last month, the taxable fixed and are expected to include bonds that mature each year from
income muni sector has managed to post an almost flat total 2020 through 2039. That being said, the preliminary official
return on a year-to-date basis through 6 April 6 (see chart). statement includes a disclosure about the outbreak of COVID-
By comparison, an index of investment grade corporate 19. The statement notes that the impact of the disease cannot
bonds (-4%) as well as tax-exempt munis (-2%) produced be quantified until more data is obtained.
weaker results over the same time frame.
For more information on taxable munis, see our Education
note, An overview of taxable municipal bonds (7 January
2020).
Taxable munis and investment grade corporates spreads Taxable and tax-exempt munis hold up better than corporate
year-to-date debt YTD
Option adjusted spread, in bps Total return, in index value
430 115
380 110
330 105
280
100
230
95
180
130 90
80 85
12/31 1/14 1/28 2/11 2/25 3/10 3/24 31-Dec 14-Jan 28-Jan 11-Feb 25-Feb 10-Mar 24-Mar
ICE BofA Broad US Taxable Municipal Securities Index OAS ICE BofA Broad US Taxable Municipal Securities Index
ICE BofA US Corporate Index OAS ICE BofA US Corporate Index
ICE BofA US Municipal Securities Index
Source: ICE BoA indices, UBS, as of 6 April 2020 ICE BofA US Treasury Index
Source: ICE BofA indices, UBS, as of 6 April 2020

Credit chartbook and key metrics

Fig A1: Investment grade financial and non-financial credit recommendations
YTW Spread Duration
Issuer CUSIP Ticker Coupon Maturity Issue Date Price S&P Amt Out Sector
% bps yrs
1-3 year (short-end)
AT&T INC 00206RBN1 T 2.625 12/1/2022 12/11/2012 2.54 227 2.32 100.2 BBB 1,119 Communications
CITIGROUP INC 172967LQ2 C 2.700 10/27/2022 10/27/2017 2.55 228 2.38 100.4 BBB+ 1,750 US banks
CVS HEALTH CORP 126650CK4 CVS 3.500 7/20/2022 7/20/2015 2.27 194 2.04 102.7 BBB 1,500 Consumer, Non-cyclical
ENERGY TRANSFER OPERATNG 29273RAQ2 ETP 5.200 2/1/2022 1/17/2012 8.21 800 1.74 95.0 BBB- 1,000 Energy
GOLDMAN SACHS GROUP INC 38141GWC4 GS 3.000 4/26/2022 1/26/2017 2.83 254 1.03 100.3 BBB+ 3,250 US banks
KINDER MORGAN ENER PART 28370TAE9 KMI 5.000 10/1/2021 9/20/2011 6.72 654 1.44 97.6 BBB 500 Energy
VERIZON COMMUNICATIONS 92343VBJ2 VZ 2.450 11/1/2022 11/7/2012 1.61 127 2.24 102.1 BBB+ 929 Communications
Intermediate maturities
APPLE INC 037833DF4 AAPL 2.750 1/13/2025 11/13/2017 1.47 106 4.33 105.9 AA+ 1,500 Technology
ALTRIA GROUP INC 02209SAS2 MO 4.000 1/31/2024 10/31/2013 3.34 300 3.55 102.4 BBB 1,400 Consumer, Non-cyclical
AT&T INC 00206RDC3 T 4.450 4/1/2024 3/17/2016 2.67 223 3.48 106.7 BBB 1,208 Communications
BOARDWALK PIPELINES LP 096630AD0 BWP 4.950 12/15/2024 11/26/2014 9.96 959 4.10 81.6 BBB- 600 Energy
BOEING CO 097023BR5 BA 2.250 6/15/2026 5/18/2016 4.38 392 5.73 88.6 BBB 400 Industrial
VIACOMCBS INC 124857AP8 VIAC 3.500 1/15/2025 1/12/2015 4.04 366 4.39 97.7 BBB 600 Communications
COMCAST CORP 20030NBX8 CMCSA 3.000 2/1/2024 1/10/2017 1.76 140 3.54 104.6 A- 1,250 Communications
CVS HEALTH CORP 126650DE7 CVS 2.625 8/15/2024 8/15/2019 2.56 221 4.05 100.2 BBB 1,000 Consumer, Non-cyclical
DOW CHEMICAL CO/THE 260543CJ0 DOW 3.500 10/1/2024 9/16/2014 3.32 295 3.97 100.8 BBB 900 Basic Materials
DUKE ENERGY CORP 26441CAN5 DUK 3.750 4/15/2024 4/4/2014 2.72 232 3.49 103.9 BBB+ 1,000 Utilities
EBAY INC 278642AL7 EBAY 3.450 8/1/2024 7/28/2014 3.07 271 3.80 101.5 BBB+ 750 Communications
EXELON CORP 30161NAU5 EXC 3.400 4/15/2026 4/7/2016 2.62 216 5.22 104.3 BBB 750 Utilities
GENERAL ELECTRIC CO 369604BG7 GE 3.375 3/11/2024 3/11/2014 3.72 338 3.70 98.7 BBB+ 750 Industrial
GENERAL MOTORS FINL CO 37045XCD6 GM 3.500 11/7/2024 11/7/2017 7.10 674 4.17 86.1 BBB 750 Consumer, Cyclical
HOME DEPOT INC 437076BC5 HD 3.750 2/15/2024 9/10/2013 1.92 148 3.39 106.8 A 1,100 Consumer, Cyclical
KINDER MORGAN ENER PART 494550BS4 KMI 4.150 2/1/2024 8/5/2013 3.87 352 3.33 101.0 BBB 650 Energy
MCDONALD'S CORP 58013MFN9 MCD 3.300 7/1/2025 3/27/2020 2.34 193 4.78 104.7 BBB+ 750 Consumer, Cyclical
MICROSOFT CORP 594918BB9 MSFT 2.700 2/12/2025 2/12/2015 1.38 95 4.34 106.2 AAA 2,250 Technology
MONDELEZ INTERNATIONAL 609207AB1 MDLZ 4.000 2/1/2024 1/16/2014 1.71 124 3.34 108.4 BBB 696 Consumer, Non-cyclical
MPLX LP 55336VAG5 MPLX 4.875 12/1/2024 9/27/2016 8.30 793 4.10 87.0 BBB 1,149 Energy
ONEOK INC 682680AS2 OKE 4.000 7/13/2027 7/13/2017 6.50 598 6.22 85.7 BBB 500 Energy
ORACLE CORP 68389XBS3 ORCL 2.950 11/15/2024 11/9/2017 2.03 164 4.15 104.0 A+ 2,000 Technology
PEPSICO INC 713448CT3 PEP 2.750 4/30/2025 4/30/2015 1.11 66 4.50 108.0 A+ 1,000 Consumer, Non-cyclical
PHILIP MORRIS INTL INC 718172BM0 PM 3.250 11/10/2024 11/10/2014 2.79 242 4.25 102.0 A 750 Consumer, Non-cyclical
PLAINS ALL AMER PIPELINE 72650RBF8 PAA 3.600 11/1/2024 9/9/2014 8.26 790 4.13 82.6 BBB- 750 Energy
SOUTHERN CO 842587CV7 SO 3.250 7/1/2026 5/24/2016 3.26 280 5.64 99.9 BBB+ 1,750 Utilities
VERIZON COMMUNICATIONS 92343VCR3 VZ 3.500 11/1/2024 10/29/2014 1.98 155 3.99 106.6 BBB+ 1,742 Communications
Financial issues
YTW Spread Duration
Issuer CUSIP Ticker Coupon Maturity Issue Date Price S&P Amt Out Sector
% bps yrs
Senior Notes
BANK OF AMERICA CORP 06051GFS3 BAC 3.875 8/1/2025 7/30/2015 2.46 205 4.84 107.0 A- 1,793 US banks
CITIGROUP INC 172967JP7 C 3.300 4/27/2025 4/27/2015 2.57 218 4.64 103.5 BBB+ 1,500 US banks
GOLDMAN SACHS GROUP INC 38148LAE6 GS 3.750 5/22/2025 5/22/2015 3.15 274 4.44 102.8 BBB+ 2,250 US banks
JPMORGAN CHASE & CO 46625HMN7 JPM 3.900 7/15/2025 7/21/2015 2.55 210 4.58 106.6 A- 2,500 US banks
MORGAN STANLEY 6174468C6 MS 4.000 7/23/2025 7/23/2015 2.92 252 4.80 105.2 BBB+ 3,000 US banks
WELLS FARGO & COMPANY 94974BGP9 WFC 3.550 9/29/2025 9/28/2015 2.59 217 5.03 104.9 A- 2,500 US banks
Subordinated Notes
BANK OF AMERICA CORP 06051GFP9 BAC 3.950 4/21/2025 4/21/2015 3.17 278 4.54 103.6 BBB+ 2,500 US banks
CITIGROUP INC 172967HB0 C 5.500 9/13/2025 9/13/2013 3.43 301 4.79 110.2 BBB 1,420 US banks
GOLDMAN SACHS GROUP INC 38141GVR2 GS 4.250 10/21/2025 10/21/2015 3.47 305 4.91 103.9 BBB- 2,000 US banks
JPMORGAN CHASE & CO 46625HJY7 JPM 3.875 9/10/2024 9/10/2014 2.49 213 4.11 105.7 BBB+ 3,000 US banks
MORGAN STANLEY 6174467X1 MS 5.000 11/24/2025 11/22/2013 3.46 303 4.92 107.8 BBB 2,000 US banks
US BANCORP 91159HHM5 USB 3.100 4/27/2026 4/26/2016 2.59 214 5.43 102.8 A- 1,000 US banks
WELLS FARGO & COMPANY 94974BFY1 WFC 4.100 6/3/2026 6/3/2014 3.38 292 5.44 104.0 BBB+ 2,437 US banks

Fig A2: Select preferred securities
Security Name Symbol/ Last Next Y TW Y TM / CY Y TC Eff

1 2
CUSIP Price Call Date (%) (%) (%) Dur 3
Attractive fixed-to-float preferreds +
Citigroup 5.00% fixed to call date; then
172967MG3 $103.30 9/12/2024 4.20% 4.60% 4.20% 4.2
SOFR+381.3bps
Citigroup 6.25% fixed to call date; thereafter
172967KM2 $112.40 8/15/2026 4.00% 5.20% 4.00% 5.6
3mo LIBOR+451.7bps
Goldman Sachs Group, Inc. 5.30% fixed to
38148BAC2 $107.40 11/10/2026 4.00% 4.70% 4.00% 5.8
call date; thereafter 3mo LIBOR+383.4bps
Morgan Stanley 5.85% fixed to call date;
MS K $27.00 4/15/2027 4.60% 5.40% 4.60% 5.8
thereafter 3mo LIBOR+349.1bps
Attractive $25 par fixed-rate coupon
Unum Group 6.25% 6/15/2058* UNMA $26.50 6/15/2023 4.00% 5.90% 4.00% 3.0
Brighthouse Financial Inc 6.25% 9/15/2058* BHFAL $26.40 9/15/2023 4.40% 5.90% 4.40% 6.5
Brighthouse Financial Inc 6.60% perpetual+ BHFAP $27.20 3/25/2024 4.50% 6.00% 4.50% 5.3
KeyCorp 5.625% perpetual+ KEY K $26.00 9/15/2024 4.40% 5.40% 4.40% 5.3
Source: Bloomberg, UBS, as of 3 March 2020
YTW = "yield to worst" is the lowest estimated yield among possible redemption date scenarios.
1
YTM calculation for F2Fs uses assumed LIBOR rates based on the forward curve through Bloomberg analytics.
2
Duration is calculated using Bloomberg analytics

3
* NRA-eligible, pays fully-taxable interest income

** Not NRA eligible, pays fully taxable REIT dividend
+ Not NRA eligible, pays qualifed dividend income

Mortgage securitized product metrics

Fig A3: Spreads for various securitized products (2020 YTD Fig A4: Year to date total return
min/max)
Non agency Duration 2020
Non agency spreads
Current level YTD min YTD max
Prime fixed 3-5yr -8,6
Legacy spreads
Alt-A ARM 0-1yr -11.4
Jumbo fixed 425 100 550
Alt A floater 450 120 575 Option ARM 0-1yr -14.7
Option ARM 540 110 575 Subprime ARM 0-1yr -13.0
Current pay subprime 375 85 500
LCF subprime 475 130 600 CMBS 4.8 -1.2
New issue spreads AAA 5.1 1.1
Jumbo 2.0 235 88 300
AA-BBB 5.0 -10.0
NPL A1 825 155 825
BBB 5.0 -14.6
NPL A2 1000 315 1000
Agency 5.1 4.0
CMBS spreads Current level YTD min YTD max
New issue on the run spreads ABS fixed 1.9 -2.3

3yr AAA 190 40 330 Auto 1.4 -1.1
5yr AAA 190 60 330 Cards 2.0 0.4
7yr AAA 190 68 330 HEL 3.2 -4.8
10yr AAA 190 75 330 MH 3.0 -2.3
AA 500 125 420
A 800 165 800
ABS floating 0.1 -2.5
BBB- 1300 270 1500
Cards 0.1 -2.2
CLO spreads Current level YTD min YTD max HEL 0.1 -3.8
CLO 2.0 Student loans 0.1 -2.5
AAA 225 103 500 Source: ICE BofAML, UBS, as of 3 April 2020
AA 350 165 400
A 450 210 700
BBB 750 310 875
BB 1200 675 1200
B 1500 1100 1580
Source: ICE BofAML, UBS, as of 3 April 2020


Fig. A5: IG Financials versus IG Industrials spreads Fig. A6: IG Corporate and Treasury yields
Spreads in basis points Yield to maturity (in %)
900 10
750
8
600
6
450
4
300
150 2
0 0
2008 2010 2012 2014 2016 2018 2020 2008 2010 2012 2014 2016 2018 2020
IG Financials Industrials
10 Year Treasury IG Bonds
Source: ICE BofAML, UBS CIO WMR, as of 3 April 2020 Source: Bloomberg, ICE BofAML, UBS WMR, as of 3 April 2020
Fig A7: IG corporate total return by maturity Fig A8: IG corporate yield table by sector and rating
In % Fixed income yield table (in %)
Maturity YTD 3-month 6-month 12-month Sector AAA AA A BBB
1-3 yrs -1.63 -1.72 -1.14 1.89
All corporates 2.12 2.39 2.92 4.59
3-5 yrs -3.12 -3.39 -2.70 2.31
Industrials 2.12 2.33 2.78 4.63
5-7 yrs -3.78 -4.23 -3.27 3.68
Utilities N/A N/A 3.26 N/A
7-10 yrs -5.27 -5.93 -4.73 3.99
10+ yrs -4.67 -6.03 -4.15 10.32 Financials 2.10 2.46 2.97 4.65
Source: ICE BofAML, UBS CIO WMR, as of 3 April 2020 Source: ICE BofAML, UBS CIO WMR, as of 3 April 2020
Fig. A9: IG versus HY corporate bond spreads Fig. A10: A-rated & BBB-rated spreads and spread ratios
Spreads in basis points Spreads in basis points (lhs), Ratio in % (rhs)
2250 900 2.00
800
1800 700 1.75
600
1350 1.50
500
900 400
1.25
300
450 200 1.00
100
0 0 0.75
2008 2010 2012 2014 2016 2018 2020 2008 2010 2012 2014 2016 2018 2020
IG HY IG 10-yr avg. HY 10-yr avg. A Corps BBB Corps BBB/A spread ratio
Source: ICE BofAML, UBS CIO WMR, as of 3 April 2020 Source: ICE BofAML, UBS CIO WMR, as of 3 April 2020


Fig. A12: Individual sector spread changes over the past year
700
600
500
400
300
200
100
The vertical line represents the range of spread from over the past year. The diamond marker shows the current spread,
1 year average Current while the square marker shows the average spread over the time period.
Fig. A13: IG corporate sector spreads vs. duration

Bubble size is indicative of market value weighting within the IG Master
700
600
Energy
500
Basic Industry
Option-adjusted Spread
400 Financial
Services Insurance Media
Banking Real Estate
300 Telecom
Capital Goods
Healthcare Services
Retail Utilities
200 Technology &
Electronics
Consumer
100 cyclical
0
4 5 6 7 8 9 10 11 12
Effective Duration

Liquidity chartbook and key metrics

Fig. B1: Bond market supply projections for 2020 Fig. B2: Bond market funding stress
Historical and projected gross supply (in USD bn) (above zero greater, below zero less)
3.5
1,000 3.0
800 2.5
2.0
600
1.5
400 1.0
200 0.5
0.0
0
-0.5
(200) -1.0
Muni Trsy MBS IG HY TIPS CMBS Apr-04 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr-16 Apr-18 Apr-20
Corps BAML GFSI Liquidity Risk
Source: JPM, UBS CIO WMR, as of 3 April 2020 Source: ICE BofAML, UBS CIO WMR, as of 3 April 2020
Fig. B3: Trading volume – Mortgages Fig. B4: Trading volume – Securitized products
Trading volume (in USD bn) Trading volume (in USD bn)
30 400 2.0
25
300 1.5
20
15 200
1.0
10
100
5 0.5
0 0
Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Feb-20 0.0
Spec pools (left axis) Agency CMO (left axis) Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Feb-20
Agency TBA (right axis) ABS CMBS IO/PO
Source: SIFMA, UBS CIO WMR, as of 3 April 2020 Source: SIFMA, UBS CIO WMR, as of 3 April 2020
Fig. B5: Trading volume – Corporates Fig. B6: Industrial corporate and BABs spreads
Trading volume (in USD bn) Option adjusted spreads (in bps)
400
35
360
30
320
25
280
20 240
15 200
10 160
5 120
0 80
Apr-16 Oct-16 Apr-17 Oct-17 Apr-18 Oct-18 Apr-19 Oct-19 Apr-20
Feb-14 Feb-15 Feb-16 Feb-17 Feb-18 Feb-19 Feb-20
CI09 U.S Industrial Corp 10+yr OAS
Invt grade High yield Corporates
BABS Build America Bond Index OAS
Source: SIFMA, UBS CIO WMR, as of 3 April 2020 Source: ICE BofAML, UBS CIO WMR, as of 3 April 2020

Rates chartbook and key metrics

Fig. C1: Treasury rates and economic surprises Fig. C2: BABs versus taxable munis spreads
Treasury yield to maturity, in % Option adjusted spread, in bps
300
3.4 230 275
2.8 250
225
2.2 200
200
1.6 175
170 150
1.0
125
0.4 140 100

Apr-14 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Apr-20 75
Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Apr-20
10yr (left axis) UBS Economic Surprise Index (right axis) Taxable Munis BABs
Source: Bloomberg, UBS CIO WMR, as of 3 April 2020 Source: ICE BofAML, UBS CIO WMR, as of 3 April 2020
Fig. C3: Treasury yield curves Fig. C4: Treasury yield curves
Yield curves, in basis points Yield curves, in basis points
200 500
150 400
300
100
200
50
100
0
0
(50) (100)
Apr-02 Apr-05 Apr-08 Apr-11 Apr-14 Apr-17 Apr-20 Apr-02 Apr-05 Apr-08 Apr-11 Apr-14 Apr-17 Apr-20
2yr/5yr 5yr/10yr 10yr/30yr 2yr/10yr 2yr/30yr 5yr/30yr

2yr/5yr Avg 5yr/10yr Avg 10yr/30yr Avg 2yr/10yr Avg 2yr/30yr Avg 5yr/30yr Avg
Source: Bloomberg, UBS CIO WMR, as of 3 April 2020 Source: Bloomberg, UBS CIO WMR, as of 3 April 2020
Fig. C5: TIPS nominal rates Fig. C6: TIPS forward rates
Interest rates, in % Forward rates, in %
5 6
4 4
3
2
2
0
1
0 (2)
Mar-10 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20
2yr Tsy Yield 5-year yield 5yr BE Fwd Fed Projection 5y5y forward infl.
10-Year Yield 30-yr yield 5Y5Y forward rate

Rates chartbook and key metrics

Fig. C7: TIPS breakeven rates Fig. C8: TIPS real rates
Breakeven rates, in % Real rates, in %
3.0 4
2.0 2
0
1.0
(2)
0.0
(4)
-1.0 Mar-10 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20
Mar-10 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20 2yr Real Rate 5yr Real Yield
2yr BEI 5yr BEI 10-Year BEI 30yr BEI 10-Year Real Rate 30-year real rate
MBS chartbook and key metrics

Fig. D1: Mortgage Basis is rich but maintain a neutral Fig. D2: Structured product yields
weighting Yield to worst, in %
Spreads, in basis points
200 6 2.7
MBS hybrid MBS fixed rate 5yr CMO
5 2.5 arm
150 30yr conv pt CMBS
4 2.3 30yr gnma pt
100 3 2yr CMO 15yr gnma pt

2.1
15yr conv pt
2 ABS auto
1.9 ABS cards
50 Agencys
1
1.7
0 0
Mar-10 Mar-12 Mar-14 Mar-16 Mar-18 Mar-20 1.5
1 2 3 4 5 6
IG CDX CC vs 10yr 10yr yield Effective duration (years)
Source: Bloomberg, CDX, UBS CIO WMR, as of 3 April 2020 Source: ICE BofAML, Yieldbook, UBS CIO WMR, as of 3 April 2020
Fig. D3: Structured product option adjusted spreads Fig. D4: Mortgage basis versus Treasury rates
OAS, in % Mortgage spread, in basis points
1.4 CMBS 300
1.2 250
1
200
0.8 ABS auto
0.6 ABS cards 150
0.4 100
30yr gnma pt Agencys 30yr conv pt
0.2
MBS hybrid arm Treasurys MBS fixed rate 50
0 15yr gnma pt
15yr conv pt 0
-0.2 Apr-02 Apr-04 Apr-06 Apr-08 Apr-10 Apr-12 Apr-14 Apr-16 Apr-18 Apr-20
1 2 3 4 5 6
Current coupon 30yr vs Treasury 5yr/10yr Current coupon 30yr vs Treasury 10yr
Effective duration (years)
Source: ICE BofAML, Yieldbook, UBS CIO WMR, as of 3 April 2020 Source: Bloomberg, UBS CIO WMR, as of 3 April 2020

Detailed asset allocation

Investor risk profile Conservative Moderate Aggressive
All figures in %
Strategic asset allocation

WMR tactical deviation

Current allocation1
Current allocation1
Current allocation1
Treasuries 33.0 -0.5 32.5 18.0 -2.0 16.0 17.0 -11.5 5.5
Short 18.0 -0.5 17.5 9.0 -2.0 7.0 0.0 0.0 0.0
Intermediate 7.5 0.0 7.5 4.0 0.5 4.5 0.0 0.0 0.0
Long 7.5 0.0 7.5 4.0 0.0 4.0 17.0 -11.5 5.5
TIPS 9.5 0.0 9.5 8.5 2.0 10.5 4.0 0.0 4.0
Short 3.5 -0.5 3.0 3.0 0.0 3.3 1.5 -1.0 0.5
Intermediate 4.0 1.0 5.0 3.5 2.0 5.7 1.5 0.5 2.0
Long 2.0 -0.5 1.5 2.0 -1.5 1.5 1.0 0.5 1.5
Agency debt 9.0 0.0 9.0 8.5 -1.5 6.0 0.0 0.0 0.0
Short 6.5 0.0 6.5 6.0 -2.0 3.3 0.0 0.0 0.0
Intermediate 1.5 0.0 1.5 1.5 0.5 2.0 0.0 0.0 0.0
Long 1.0 0.0 1.0 1.0 -0.5 0.7 0.0 0.0 0.0
Mortgage backed securities 18.5 0.0 18.5 22.5 0.0 22.8 12.0 0.0 12.0
Short 8.0 0.0 8.0 10.0 0.0 10.3 5.0 -2.0 3.0
Intermediate 8.5 0.0 8.5 10.0 2.5 12.3 5.5 1.0 6.5
Long 2.0 0.0 2.0 2.5 -2.5 0.2 1.5 1.0 2.5
MBS/Securitized products 8.0 1.0 9.0 10.0 0.0 10.0 13.0 -1.0 12.0
Short 3.5 0.5 4.0 4.5 0.5 5.0 5.5 -2.5 3.0
Intermediate 3.5 0.5 4.0 4.5 0.5 4.9 6.0 3.0 9.0
Long 1.0 0.0 1.0 1.1 -1.0 0.1 1.5 -1.5 0.0
Investment grade corporates 9.5 0.5 10.0 12.5 0.0 12.5 10.5 2.5 13.0
Short 3.5 0.5 4.0 4.5 1.5 5.7 3.5 0.5 4.0
Intermediate 3.0 0.0 3.0 4.0 0.0 3.4 3.5 1.0 4.5
Long 3.0 0.0 3.0 4.0 -1.5 3.4 3.5 1.0 4.5
High yield corporates 4.0 0.0 4.0 10.5 0.0 11.5 25.0 9.0 34.0
BB-rated 4.0 0.0 4.0 6.0 -1.0 5.5 8.5 -3.0 5.5
B-rated 0.0 0.0 0.0 5.5 -0.5 6.0 16.5 12.0 28.5
Taxable municipals 5.0 -0.5 4.5 3.5 -0.5 3.0 2.5 -1.0 1.5
Preferred securities 2.0 -0.5 1.5 3.0 -1.0 2.0 8.0 -2.0 6.0
Bank loans 1.5 0.0 1.5 3.0 4.0 4.5 8.0 4.0 12.0
1The current allocation column is the sum of the strategic asset allocation and the tactical deviation column.
Note: See Appendix for information regarding sources of strategic asset allocations and their suitability, investor risk profiles, and the interpretation of the suggested tactical deviations
from the strategic asset allocations.
Source: UBS and WMA AAC, as of 3 April 2020

Appendix
Explanations about asset allocations
Sources of strategic asset allocations and investor risk profiles

Strategic asset allocations represent the longer-term allocation of assets that is deemed suitable for a particular inves-
tor. The strategic asset allocation models discussed in this publication, and the capital market assumptions used for the
strategic asset allocations, are based on those developed and approved by the Wealth Management Americas Asset
Allocation Committee (WMA AAC).
The strategic asset allocations are provided for illustrative purposes only and are based on those designed by the WMA
AAC for hypothetical US investors with a total return objective under three different Investor Risk Profiles ranging from
conservative to aggressive. In general, strategic asset allocations will differ among investors according to their individual
circumstances, risk tolerance, return objectives and time horizon. Therefore, the strategic asset allocations in this publi-
cation may not be suitable for all investors or investment goals and should not be used as the sole basis of any invest-
ment decision. Minimum net worth requirements may apply to allocations to non-traditional assets. As always, please
consult your UBS Financial Advisor to see how these weightings should be applied or modified according to your indi-
vidual profile and investment goals.
The process by which the strategic asset allocations were derived is described in detail in the publication entitled The
tilts of FIS - A primer on fixed income asset allocation, published on 9 April 2015. Your Financial Advisor can provide
you with a copy.
Deviations from strategic asset allocation or benchmark allocation

The recommended tactical deviations from the strategic asset allocation or benchmark allocation are provided by the
Global Investment Committee and the Investment Strategy Group within CIO Wealth Management Research Americas.
They reflect the short- to medium-term assessment of market opportunities and risks in the respective market seg-
ments. Positive/zero/negative tactical deviations correspond to an overweight / neutral / underweight stance for each
respective market segment relative to their strategic allocation. The current allocation is the sum of the strategic asset
allocation and the tactical deviation.

Appendix
Investment Committee
Global Investment Process and Committee Description

The UBS investment process is designed to achieve replicable, high quality results through applying intellectual rigor,
strong process governance, clear responsibility and a culture of challenge.
Based on the analyses and assessments conducted and vetted throughout the investment process, the Chief Investment
Officer (CIO) formulates the UBS Wealth Management Investment House View (e.g., overweight, neutral, underweight
stance for asset classes and market segments relative to their benchmark allocation) at the Global Investment Commit-
tee (GIC). Senior investment professionals from across UBS, complemented by selected external experts, debate and
rigorously challenge the investment strategy to ensure consistency and risk control.
Global Investment Committee Composition

The GIC is comprised of eight members, representing top market and investment expertise from across all divisions of
UBS:
Mark Haefele (Chair) Jorge Mariscal Mike Ryan

Simon Smiles Tan Min Lan Themis Themistocleous
Paul Donovan Bruno Marxer (*) Andreas Koester
(*) Business areas distinct from Chief Investment Office/Wealth Management Research
WMA Asset Allocation Committee Description

We recognize that a globally derived house view is most effective when complemented by local perspective and appli-
cation. As such, UBS has formed a Wealth Management Americas Asset Allocation Committee (WMA AAC). WMA
AAC is responsible for the development and monitoring of UBS WMA’s strategic asset allocation models and capital
market assumptions. The WMA AAC sets parameters for the CIO Wealth Management Research Americas Investment
Strategy Group to follow during the translation process of the GIC’s House Views and the incorporation of US-specific
asset class views WMR-A into the US-specific tactical asset allocation models.
WMA Asset Allocation Committee Composition

The WMA Asset Allocation Committee is comprised of nine members:
Mike Ryan Michael Crook Jason Draho

Leslie Falconio Laura Kane David Lefkowitz
Tom McLoughlin Brian Rose Jeremy Zirin
(*) Business areas distinct from Chief Investment Office/Wealth Management Research

Appendix

Appendix
Statement of Risk
Municipal bonds - Although historical default rates are very low, all municipal bonds carry credit risk, with the degree of
risk largely following the particular bond’s sector. Additionally, all municipal bonds feature valuation, return, and liquidity
risk. Valuation tends to follow internal and external factors, including the level of interest rates, bond ratings, supply
factors, and media reporting. These can be difficult or impossible to project accurately. Also, most municipal bonds are
callable and/or subject to earlier than expected redemption, which can reduce an investor’s total return. Because of the
large number of municipal issuers and credit structures, not all bonds can be easily or quickly sold on the open market.
Disclaimer of Liability - This may contain information obtained from third parties, including ratings from credit ratings
agencies such as Standard & Poor's. Reproduction and distribution of third party content in any form is prohibited except
with the prior written permission of the related third party. Third party content providers do not guarantee the accuracy,
completeness, timeliness or availability of any information, including ratings, and are not responsible for any errors or
omissions (negligent or otherwise), regardless of the cause, or for the results obtained from the use of such content.
THIRD PARTY CONTENT PROVIDERS GIVE NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO,
ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE. THIRD PARTY CONTENT
PROVIDERS SHALL NOT BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, EXEMPLARY, COMPENSATORY, PUNITIVE,
SPECIAL OR CONSEQUENTIAL DAMAGES, COSTS, EXPENSES, LEGAL FEES, OR LOSSES (INCLUDING LOST INCOME OR
PROFITS AND OPPORTUNITY COSTS) IN CONNECTION WITH ANY USE OF THEIR CONTENT, INCLUDING RATINGS. Credit
ratings are statements of opinions and are not statements of fact or recommendations to purchase, hold or sell securities.
They do not address the suitability of securities or the suitability of securities for investment purposes, and should not
be relied on as investment advice.
UBS does and seeks to do business with issuers covered in its research reports. As a result, investors should be aware that
the firm may have a conflict of interest that could affect the objectivity of UBS research reports.
Fixed income - Bond market returns are difficult to forecast because of fluctuations in the economy, investor psychology,
geopolitical conditions and other important variables. Corporate bonds are subject to a number of risks, including credit
risk, interest rate risk, liquidity risk, and event risk. Though historical default rates are low on investment grade corporate
bonds, perceived adverse changes in the credit quality of an issuer may negatively affect the market value of securities. As
interest rates rise, the value of a fixed coupon security will likely decline. Bonds are subject to market value fluctuations,
given changes in the level of risk-free interest rates. Not all bonds can be sold quickly or easily on the open market.
Prospective investors should consult their tax advisors concerning the federal, state, local, and non-U.S. tax consequences
of owning any securities referenced in this report.
Preferred securities - Prospective investors should consult their tax advisors concerning the federal, state, local, and
non-U.S. tax consequences of owning preferred stocks. Preferred stocks are subject to market value fluctuations, given
changes in the level of interest rates. For example, if interest rates rise, the value of these securities could decline. If
preferred stocks are sold prior to maturity, price and yield may vary. Adverse changes in the credit quality of the issuer may
negatively affect the market value of the securities. Most preferred securities may be redeemed at par after five years. If
this occurs, holders of the securities may be faced with a reinvestment decision at lower future rates. Preferred stocks are
also subject to other risks, including illiquidity and certain special redemption provisions.
Required Disclosures
Analyst Certification
Each research analyst primarily responsible for the content of this research report, in whole or in part, certifies that with
respect to each security or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect
his or her personal views about those securities or issuers; and (2) no part of his or her compensation was, is, or will be,
directly or indirectly, related to the specific recommendations or views expressed by that research analyst in the research
report.
Issuer credit risk rating definitions

Appendix
The UBS CIO issuer credit risk rating reflects the opinion of the relevant UBS CIO analyst regarding an issuer's risk of a
near- to intermediate-term dividend deferral on preferred securities, and/or issuer payment default on debt obligations.
Low Risk: The issuer is considered to be in solid financial condition with strong credit fundamentals and low likelihood
of a near- to intermediate-term dividend deferral, and/or issuer payment default. The issuer's securities are of generally
high quality.
Medium Risk: The issuer is considered to be in adequate financial condition with satisfactory credit fundamentals relative
to the near- to intermediate-term dividend deferral, and / or issuer payment default. The issuer's securities are of medium
to weaker credit quality and may have higher volatility than those of Low Risk issuers. These instruments should therefore
only be held by risk tolerant investors.
High Risk: The issuer is considered to be in weak financial condition with deteriorating credit fundamentals or the state
of the issuer's financial condition and credit fundamentals may be uncertain due to volatile market conditions. Sector
considerations may be a dominating factor. There is a high likelihood of a near- to intermediate-term dividend deferral,
and / or issuer payment default. The issuer's securities are speculative.
Note: Distinctions in the credit quality of individual security instruments may vary based on the maturity of the instrument,
as well as the relative priority within an issuer's capital structure. These distinctions will be discussed in our future credit
reports, as applicable. In regions outside the United States, the UBS CIO office will map these distinctions to security-
level risk flags.
Issuer credit outlook definitions
The UBS CIO issuer credit outlook reflects the opinion of the relevant CIO analyst regarding an issuer's credit quality
outlook over the succeeding 12 months. For rated securities, this may include the likelihood of a change in the published
rating by a nationally recognized credit rating agency/statistical rating organization.
Improving: We expect the credit profile of the issuer to improve, to an extent that may justify upgrades by rating agencies.
Stable: We do not expect the credit profile of the issuer to change meaningfully.
Deteriorating: We expect the credit profile of the issuer to deteriorate, to an extent that may result in single-notch or
even multi-notch credit rating downgrades by rating agencies.
For a complete set of required disclosures relating to the companies that are the subject of this report, please mail
a request to UBS CIO Global Wealth Management Business Management, 1285 Avenue of the Americas, 8th Floor,
Avenue of the Americas, New York, NY 10019.
Disclosures (8 April 2020)
Altria Group Inc. 2, 3, 4, Apple Inc. 1, 2, 3, 4, 5, AT&T Inc. 1, 2, 3, 4, 6, 7, 8, 12, 13, Bank of America 1, 2, 3, 4, 5, 6,
7, 8, 9, 10, 11, 12, Boeing Co. 1, 2, 3, 4, Brighthouse Financial Inc 1, 2, 6, 8, 12, 13, 14, Citigroup 1, 2, 3, 4, 5, 6, 7,
8, 9, 10, 11, 13, 15, 16, Comcast Corp. (Cl A) 2, 14, 17, 18, 21, CVS Health 1, 2, 3, 4, Dow, Inc. 1, 2, 10, Duke Energy
1, 2, 3, 4, eBay 1, 2, 3, 4, 9, Exelon 1, 2, 3, 4, Ford Motor Co 1, 2, 19, General Electric Co. 1, 2, 3, 4, 6, 8, 10, 18, 22,
General Motors 1, 2, 19, Goldman Sachs 1, 2, 3, 4, 6, 9, 10, Home Depot Inc. 2, 3, 4, 14, JPMorgan 1, 2, 3, 4, 6, 9, 10,
11, KeyCorp 1, 2, 6, 7, 8, 11, Kinder Morgan, Inc. 2, McDonald's Corp. 2, 3, 4, 13, 14, 17, Microsoft Corp. 1, 2, 3, 4,
5, 6, 8, 9, 10, 18, 23; Mondelez International 2, 3, 4, Morgan Stanley 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, MPLX LP 1, 2, Oracle
Corp. 2, 3, 4, PepsiCo Inc. 1, 2, 3, 4, 6, 7, 9, 13, 20, Philip Morris Intl Inc. 1, 2, 3, 4, 6, 7, 8, Plains All American Pipeline
LP 2, 12, 14, Southern Company 1, 2, 3, 4, 9, 12, U.S. Bancorp 1, 2, 3, 4, 9, 11, 12, Unum Group 1, 2, 3, 4, 9, Verizon
Communications Inc. 2, 3, 4, Viacom Inc. (Cl B) 2, Wells Fargo 1, 2, 3, 4, 6, 7, 8, 9, 10, 11, 12, 13, 15, 17,
1. Within the past 12 months, UBS Securities LLC and/or its affiliates have received compensation for products and
services other than investment banking services from this company/entity.
2. UBS Securities LLC makes a market in the securities and/or ADRs of this company.
3. This company/entity is, or within the past 12 months has been, a client of UBS Financial Services Inc, and non-
investment banking securities-related services are being, or have been, provided.
4. Within the past 12 months, UBS Financial Services Inc has received compensation for products and services other
than investment banking services from this company.
5. UBS AG, its affiliates or subsidiaries held other significant financial interests in this company/entity as of last month's
end (or the prior month's end if this report is dated less than 10 working days after the most recent month's end).
6. Within the past 12 months, UBS AG, its affiliates or subsidiaries has received compensation for investment banking
services from this company/entity or one of its affiliates.

Appendix
7. UBS AG, its affiliates or subsidiaries has acted as manager/co-manager in the underwriting or placement of securities
of this company/entity or one of its affiliates within the past 12 months.
8. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and investment
banking services are being, or have been, provided.
9. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-investment
banking securities-related services are being, or have been, provided.
10. This company/entity is, or within the past 12 months has been, a client of UBS Securities LLC, and non-securities
services are being, or have been, provided.
11. Because this security exhibits higher-than-average volatility, the FSR has been set at 25% above the MRA for a Buy
rating, and at -25% below the MRA for a Sell rating (compared with 6/-6% under the normal rating system).
12. UBS AG, its affiliates or subsidiaries beneficially owned 1% or more of a class of this company's common equity
securities as of last month's end (or the prior month's end if this report is dated less than 10 days after the most recent
month's end).
13. UBS AG, its affiliates or subsidiaries expect to receive or intend to seek compensation for investment banking
services from this company/entity within the next three months.
14. UBS Financial Services Inc., its affiliates or subsidiaries owns a net long position exceeding 0.5% of the total issued
share capital of this company.
15. UBS Securities LLC is acting as manager/co-manager, underwriter, placement or sales agent in regard to an offering
of securities of this company/entity or one of its affiliates.
16. The fixed income analyst covering this company, a member of his or her team, or one of their household members
has a long common stock position in this company.
17. The equity analyst covering this company, a member of his or her team, or one of their household members has a
long common stock position in this company.
18. The UBS Wealth Management strategist, a member of his or her team, or one of their household members has a
long common stock position in this company.
19. Because this security exhibits higher-than-average volatility, the FSR has been set at 15% above the MRA for a Buy
rating, and at -15% below the MRA for a Sell rating (compared with 6/-6% under the normal rating system).
20. UBS is acting as advisor to PepsiCo on its acquisition of Pioneer Foods Group.
21. Barry McAlinden, or one of his/her household members has a long common stock position in Comcast Corp. (Cl A).
22. Barry McAlinden, or one of his/her household members has a long common stock position in General Electric Co..
23. Barry McAlinden, or one of his/her household members has a long common stock position in Microsoft Corp..
Preferred Securities Ratings Definitions

Rating Definition
Preferred securities on the Attractive List are those that we view favorably based on (1) fundamental
Attractive
credit quality, (2) valuation and (3) structure (security characteristics).
We believe that issuers of preferreds on the Neutral List are likely to meet the coupon payment but we
Neutral
do not deem the preferreds to fit the definition of our Attractive or Unattractive Lists.
We may deem these preferred securities to be Unattractive for fundamental reasons, for valuation
reasons, or because of their structure. In the case of fundamental drivers, we have concerns that the
Unattractive
credit profile may deteriorate. Sector considerations may also be a factor. In the case of valuation, we
believe that price/yield levels do not adequately compensate investors for the risks.

Appendix
Disclaimer
UBS Chief Investment Office's ("CIO") investment views are prepared and published by the Global Wealth Management
business of UBS Switzerland AG (regulated by FINMA in Switzerland) or its affiliates ("UBS").
The investment views have been prepared in accordance with legal requirements designed to promote the independence
of investment research.
Instrument/issuer-specific investment research – Risk information:
This publication is for your information only and is not intended as an offer, or a solicitation of an offer, to buy or sell
any investment or other specific product. The analysis contained herein does not constitute a personal recommendation or
take into account the particular investment objectives, investment strategies, financial situation and needs of any specific
recipient. It is based on numerous assumptions. Different assumptions could result in materially different results. Certain
services and products are subject to legal restrictions and cannot be offered worldwide on an unrestricted basis and/or
may not be eligible for sale to all investors. All information and opinions expressed in this document were obtained from
sources believed to be reliable and in good faith, but no representation or warranty, express or implied, is made as to its
accuracy or completeness (other than disclosures relating to UBS). All information and opinions as well as any forecasts,
estimates and market prices indicated are current as of the date of this report, and are subject to change without notice.
This publication is not intended to be a complete statement or summary of the securities, markets or developments
referred to in the report. Opinions expressed herein may differ or be contrary to those expressed by other business areas
or divisions of UBS as a result of using different assumptions and/or criteria.
In no circumstances may this document or any of the information (including any forecast, value, index or other calculated
amount ("Values")) be used for any of the following purposes (i) valuation or accounting purposes; (ii) to determine
the amounts due or payable, the price or the value of any financial instrument or financial contract; or (iii) to measure
the performance of any financial instrument including, without limitation, for the purpose of tracking the return or
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employees may be entitled at any time to hold long or short positions in investment instruments referred to herein, carry
out transactions involving relevant investment instruments in the capacity of principal or agent, or provide any other
services or have officers, who serve as directors, either to/for the issuer, the investment instrument itself or to/for any
company commercially or financially affiliated to such issuers. At any time, investment decisions (including whether to
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UBS research publications. Some investments may not be readily realizable since the market in the securities is illiquid and
therefore valuing the investment and identifying the risk to which you are exposed may be difficult to quantify. UBS relies
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risk of loss, and losses in excess of an initial investment may occur. Past performance of an investment is no guarantee for
its future performance. Additional information will be made available upon request. Some investments may be subject
to sudden and large falls in value and on realization you may receive back less than you invested or may be required to
pay more. Changes in foreign exchange rates may have an adverse effect on the price, value or income of an investment.
The analyst(s) responsible for the preparation of this report may interact with trading desk personnel, sales personnel and
other constituencies for the purpose of gathering, synthesizing and interpreting market information.
Research publications from CIO are written by UBS Global Wealth Management. UBS Global Research is written by UBS
Investment Bank. Except for economic forecasts, the research process of CIO is independent of UBS Global Research.
As a consequence research methodologies applied and assumptions made by CIO and UBS Global Research may
differ, for example, in terms of investment horizon, model assumptions, and valuation methods. Therefore investment
recommendations independently provided by the two UBS research organizations can be different. The compensation of
the analyst(s) who prepared this report is determined exclusively by research management and senior management (not
including investment banking). Analyst compensation is not based on investment banking, sales and trading or principal
trading revenues, however, compensation may relate to the revenues of UBS as a whole, of which investment banking,
sales and trading and principal trading are a part.
Tax treatment depends on the individual circumstances and may be subject to change in the future. UBS does not provide
legal or tax advice and makes no representations as to the tax treatment of assets or the investment returns thereon both in
general or with reference to specific client's circumstances and needs. We are of necessity unable to take into account the

Appendix
particular investment objectives, financial situation and needs of our individual clients and we would recommend that you
take financial and/or tax advice as to the implications (including tax) of investing in any of the products mentioned herein.
This material may not be reproduced or copies circulated without prior authority of UBS. Unless otherwise agreed in
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Fixed Income Strategist: Price Discovery Mode

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Fixed Income Strategist: Price Discovery Mode

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Fixed Income

Price discovery mode

Our review of key topics influencing the taxable fixed income

CIO GWM 8 April 2020 2

Price discovery mode

CIO GWM 8 April 2020 3

CIO GWM 8 April 2020 4

US Fixed Income Preferences

NOTE: TACTICAL TIME HORIZON IS APPROXIMATELY SIX MONTHS, AS OF 7 APRIL 2020

CIO GWM 8 April 2020 5

Taxable allocations &

US taxable fixed income allocation Conservative Moderate Aggressive

Short 17.5 7.0 0.0

Short 3.0 3.3 0.5

Short 6.5 3.3 0.0

CIO GWM 8 April 2020 6

Allocations and recommendations (cont'd)

US taxable fixed income allocation Conservative Moderate Aggressive

Short 4.0 5.0 3.0

Short 4.0 5.7 4.0

CIO GWM 8 April 2020 7

Source: Bloomberg, UBS, as of 31 March 2020

CIO GWM 8 April 2020 8

CIO GWM 8 April 2020 9

Investment grade bonds

CIO GWM 8 April 2020 10

High yield corporate bonds

CIO GWM 8 April 2020 11

CIO GWM 8 April 2020 12

Taxable municipal bonds

Source: ICE BofA indices, UBS, as of 6 April 2020

CIO GWM 8 April 2020 13

Credit chartbook and key metrics

CIO GWM 8 April 2020 14

Fig A2: Select preferred securities

Security Name Symbol/ Last Next Y TW Y TM / CY Y TC Eff

Duration is calculated using Bloomberg analytics

* NRA-eligible, pays fully-taxable interest income

CIO GWM 8 April 2020 15

Mortgage securitized product metrics

New issue on the run spreads ABS fixed 1.9 -2.3

CIO GWM 8 April 2020 16

Credit chartbook and key metrics

CIO GWM 8 April 2020 17

Credit chartbook and key metrics

Source: ICE BofAML, UBS, as of 6 April 2020

Fig. A13: IG corporate sector spreads vs. duration

Source: ICE BofAML, UBS, as of 6 April 2020

CIO GWM 8 April 2020 18

Liquidity chartbook and key metrics

Agency TBA (right axis) ABS CMBS IO/PO

CIO GWM 8 April 2020 19

Rates chartbook and key metrics

0.4 140 100

2yr/5yr 5yr/10yr 10yr/30yr 2yr/10yr 2yr/30yr 5yr/30yr

CIO GWM 8 April 2020 20

Rates chartbook and key metrics

MBS chartbook and key metrics

100 3 2yr CMO 15yr gnma pt

0.6 ABS cards 150

CIO GWM 8 April 2020 21

Detailed asset allocation

Strategic asset allocation