Diversified approach to income is essential now, says UBS

UBS says income investors should diversify income sources because it expects higher volatility and tight credit spreads; the firm highlights bonds, private credit and structured products as potential income sources.

UBS's chief investment office urged income investors to maintain diversified sources of yield. The firm expects volatility in 2026 will likely be higher than in 2025 and cited tight credit spreads and uncertainty around government debt. Leslie Falconio, head of taxable fixed income strategy in UBS Americas, described mixing fixed-income sectors that move with equities and those that are less correlated. Key points: - UBS says tight credit spreads reduce compensation for taking credit risk and therefore recommends a diversified approach to yield generation. - Falconio noted exposure to corporate credit alongside less correlated sectors such as agency mortgage-backed securities, and said she is favouring high-quality bonds while being selective in high yield. - UBS expects medium-duration quality bonds to deliver mid-single-digit returns in 2026 and noted the 10-year Treasury yield has been around 4.15%. - The firm mentions dividend stocks, private credit and yield-generating structured investments as additional income sources, and it highlights the need to watch liquidity, issuer and market risks. Summary: UBS frames diversification as a way to manage concentration risk and to pursue income amid an outlook of higher volatility and tight spreads. The firm lists several income sources across bonds, private credit and structured products while noting pockets of stress and the need for selectivity. Undetermined at this time.