UBS chairman warns investors over market jolts from swing in global rates

Investors are dangerously unprepared for a sharp rise in eurozone bond yields when US interest rates march higher and European quantitative easing ends, Axel Weber, chairman of UBS and the former head of the Bundesbank, has warned.

The jump in US rates could spark big jolts in the markets as the long spell of aggressive monetary easing across the globe has left many investors off-guard over a swing in the global rate cycle, he added.

“I don’t think we will have increasing divergence among the major central banks in the world for much longer,” Mr Weber said, predicting that Europe would follow the US with a rate rise by next September at the latest. “I think the ECB is closer to slowing its current quantitative easing programme than many in the market expect.”

The comments by Mr Weber are likely to be closely watched in the markets, not least because he led the German central bank between 2004 and 2011 and served on the governing council of the ECB.

In recent weeks, benchmark 10-year Treasury yields have risen sharply on expectations that Donald Trump’s new government will launch policies to boost US growth as well as the strong likelihood that the Federal Reserve will raise short-term interest rates this month.

Until now, the eurozone has not seen a similar swing in rates as short-term rates have stayed low – or even negative in some markets – while the ECB has been engaged in aggressive QE, including extensive bond purchases. But Mr Weber predicted that the ECB would end its bond purchases sooner than many investors had assumed, sending the eurozone yield curve higher.

“A large part of the market is unidirectionally positioned and it is positioned in a direction where you will have to take off some of those positions over the course of 2017,” he said.

Mr Weber also voiced support for Mr Trump’s plans to move away from only monetary stimulus toward more structural measures and fiscal stimulus, such as large-scale infrastructure projects. However, he aired concern that US companies with international operations could be negatively affected by the president-elect’s plans to alter trade agreements.