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UBS launches new Euro Corporates Bond Fund
There are few capital markets that have changed as much in recent years as the euro corporate bond market. More and more firms are taking advantage of the simpler access to the single capital market provided by European Monetary Union. This is creating opportunities for companies and investors alike.
UBS Global Asset Management has launched its new bond fund, UBS (Lux) Bond Sicav - EUR Corporates, with this target group in mind. The fund offers easy access to the broad, liquid market of EUR-denominated corporate bonds. It spreads credit risk and increases earnings opportunities by investing in a well-diversified portfolio of carefully selected, prime securities. The fund also has a favourable risk/return ratio. The yield potential of corporates is higher than that of government bonds, though the increase in additional risk is proportionately lower.
By subscribing to this fund, investors are also well provided for, since corporate bonds offer better earnings opportunities than government bonds with a similar duration in an economic upturn. Price losses caused by generally higher interest rates during an economic upturn are cushioned by price gains achieved as a result of lower credit risks.
The current volume of outstanding corporate bonds in the single currency, which is still new, amounts to EUR 700 bn. This figure is spread across over 800 different bonds and accounts for 15% of the total EUR bond market (source: Lehman Euro Aggregate).
There are two reasons why this dynamic performance runs counter to the current economic gloom. On the one hand, the market provides firms with financing opportunities on attractive terms. In addition to bank loans (relatively expensive, short term, and usually with strict conditions attached) or issuing new equity capital via the stock exchange (time-consuming and not particularly attractive at existing market prices), companies are increasingly raising fresh capital via bond issues.
On the other hand, economic developments in recent years such as the privatisation of state-owned companies, mergers and corporate expansion have increased firms' capital requirements. Investors are also satisfied with the attractive investment alternatives offered by corporate bonds.
Zurich / Basel, 2 April 2003