Federated Hermes: Weekly Markets Wrap Up 3 September 2026
In this week’s markets wrap up, we explore the global rise in sovereign bond yields and what's driving it, plus UBS's key win in its battle over Switzerland's post Credit Suisse capital rules.
R.J. Gallo, CIO for Global Fixed Income at Federated Hermes
The Global Phenomenon of Rising Yields
Globally, long-term sovereign bond yields have been on the rise with ongoing inflationary pressures. Persistent geopolitical conflict keeping oil prices elevated, varying degrees of concern around developed country sovereign deficits, and expected monetary policy tightening by the European Central Bank and Bank of Japan have also contributed to rising long-term yields.
Conditions in the US Treasury market bear some responsibility as well. After all, the USA is running deficits at nearly 6% of GDP at a time of relative prosperity. Additionally, the unusual step by US Treasury Secretary Bessent to increase purchases of long-term US bonds seems targeted at the symptom of rising yields but not the underlying malady of large structural deficits.
China offers some relief from the inflation dynamic as its domestic growth remains tepid and it continues to lean on heavy export growth, exporting disinflation to the rest of the world. China may invite greater pressure for tariffs from the Trump administration as a result. Though the greatest risk of tariffs is likely past, administration efforts to rebuild them, such as the budding trade war with Canada, suggest inflation effects from trade policy remain a risk to watch.
For now, with the US economy holding up well, Chair Warsh has likely boxed the Fed into a September hike unless inflation data weakens dramatically and soon.
Filippo Alloatti, Head of Financials for Credit at Federated Hermes
UBS Wins Key Battle Over Swiss Capital Rules
UBS has secured an important win this week in its long-running battle over Switzerland's post-Credit Suisse banking reforms after a parliamentary committee backed a softer version of the proposed 'Lex UBS' capital requirements. The committee supports allowing UBS to meet 50% of the capital requirements for foreign subsidiaries with AT1 instruments rather than requiring 100% Common Equity Tier 1 backing. This will reduce the potential capital burden on the bank.
While the proposals still need to pass through the Swiss legislative process and could ultimately face a referendum, the initial market reaction suggests investors see the outcome as materially less severe than the government's original plans. In our view the proposals are supportive for UBS shareholders and senior holding company debt, as more capital remains subordinate to those instruments. However they are less favourable for AT1 investors given discussions around raising loss-absorption triggers and restricting distributions sooner in a stress scenario.
A further positive for UBS is the proposed seven-year phase-in period, which would give management greater flexibility to adapt its capital structure over time and mitigate the immediate impact of the reforms.
