London, 27 January 2006. The report examines the distortion of UK bond markets and the increase in investment risk caused by the UK pension funds' acute risk aversion. UBS believes that pension funds should be wary of committing assets to these markets at current yields.

Actuate risk aversion by UK funds has created a bubble that has distorted UK bond markets and increased investment risks. There has been a dramatic collapse in real yields on long-dated UK bonds as pension fund demand has outstripped supply.

For many defined benefit pension funds, the impact on liability costs has been severe. Even strong equity markets have not been enough to prevent deficits rising sharply.

Nic Barnes, Executive Director and Head of Sterling Fixed Income at UBS Global Asset Management and author of the report comments: "Real yields at current low levels are unsustainable. As a consequence we have positioned our clients' discretionary managed pension funds accordingly."

Barnes adds, "even pensions funds considering low-risk liability matching using long-dated, index-linked gilts should be wary of committing assets to the market at current yields."

Contact:

Charles Gorman, UBS Media Relations
Telephone: +44 020 7568 2910
Email charles.gorman@ubs.com