“We will still see news flow around tariffs going forward, but I think we have a good sense of where things are going to turn out,” says Villamin, who believes that tariffs will not fall below 10%. “Why? Trump needs the US$200 billion [$257 billion] for his budget.”
With Trump’s new tax cut policies, Villamin says the country will need to start looking for other sources of income, which will be in the form of tariffs. While negotiations between the US and other countries are ongoing, Villamin expects the tariffs will not likely reach 20% levels, at least for most countries, as it puts a lot of pressure on economies and bond markets.
UBP believes the most likely outcome is a compromise 15% global tariff rate, which is crucial to fund Trump’s proposed tax cuts. Villamin explained that the 10% global tariff is expected to raise about US$200 billion annually or US$2 trillion over 10 years, creating a structural funding mechanism for Washington’s fiscal agenda.
The budget proposal, which is expected to be finalised by July, includes extended tax relief and stimulative spending measures worth up to US$5 trillion over the next decade. “That (tariffs) pays for this,” Villamin said. “So when they pull back on reciprocal tariffs, you started opening up this … this is money they will have to borrow. And when they borrow, they’re trying to sell it to all of you, and you’re going to say, I need higher yields.”
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Villamin pushed back on the notion that the US is heading into recession. While the first quarter posted negative GDP growth, he argued this was misleading. “We saw this in 2022. We had two quarters of negative GDP growth. That was not a recession. Why? Because the final demand in the US was very strong. The final demand right now is again very strong. It’s running at 3%.”
UBP estimates US GDP growth to range from 1% to 2% this year, depending on the magnitude of tariff drag and fiscal offset. Inflation, which is already rebounding, could trend toward 3% by year-end.
Bond markets, however, are pricing in a much more bearish scenario — a tariff-induced recession followed by a deflationary slump. “US bond markets think inflation will fall very sharply over the next few years. We don’t see that,” he said. UBP sees yields continuing to rise, potentially toward 5%, as fiscal expansion collides with the market’s demand for higher returns.
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“We are seeing inflation bottoming, while tariffs and fiscal stimulus will push those numbers up from here. So what does that mean? That means bond yields continue to rise, but again, we think towards 5% going forward; one aspect of that catalyst for that will be what comes in July,” says Villamin.
In this environment, Villamin reiterates UBP’s preference for short-duration, high-coupon fixed income and selective hedge funds. “Most people are just normal investors; they buy investment-grade bonds. We’re of the view that stepping into low-duration, high-coupon bonds makes a lot of sense,” he says. “The alternative… is to put a portion of what you used to invest in bonds into select hedge fund strategies.”
Eyes on Europe and China
“Let’s be honest, about a year ago, there was no reason to talk about Europe unless you’re going there on holiday,” says Villamin. This has changed today.
While much of 2024 was dominated by US macro headlines, UBP believes Europe now offers an underappreciated upside. Germany’s planned EUR 1 trillion ($1.48 trillion) spending programme focused on defence and infrastructure is at the core of this view.
“To give you a sense, in 2009, China launched a US$1 trillion stimulus. Back then, China’s economy was about US$10 trillion. Germany is going to spend a trillion euros on an eight trillion-euro economy. So this is a stimulus similar to the pace of China’s 2009 stimulus,” says Villamin.
UBP expects this to raise nominal GDP growth in the eurozone from about 3% to as high as 5%. The firm believes investors should revisit European banks, which are trading near book value and not yet pricing in the expected increase in credit demand.
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“As this money gets spent, what do European companies do? They call their banks [for loans],” says Villamin. “Banks trade at about book value in Europe. Yields are above cash and we think they are not pricing for this pick-up in growth.”
The currency tailwind adds to the case. Villamin expects the euro to settle into a new range of 1.10–1.25 against the US dollar, up from recent lows near parity.
As for China, Villamin advised patience. While markets continue to anticipate more stimulus, UBP expects the real pivot to come with the rollout of China’s next Five-Year Plan in October.
Villamin says: “Everybody’s waiting for the stimulus in China. We’ve been waiting since about October of last year. That said, what is coming in October is China’s official five-year plan. China needs to make a pivot. They cannot work on selling to the US anymore.”
In the meantime, Villamin prefers Singapore banks as a proxy for Chinese recovery. “Singapore is still pricing in a near bottom-of-cycle environment. You’re getting very attractive dividend yields,” he adds. And if stimulus comes out of Europe, China or the US, he believes the global cycle will turn and offer further positive opportunities for the banks.
Fiscal firepower and market repositioning
In UBP’s view, markets have shifted from a monetary to a fiscal regime and most portfolios are still catching up. Villamin urged investors to adapt to this structural change by reducing reliance on duration, hedging dollar risk and looking globally for growth.
“Do not underestimate what’s coming out of Berlin,” he said. “That EUR 1 trillion defence package… if that comes, you will see another move through the European markets,” he says, expecting more European countries to follow suit and increase their defence spending.
He also highlighted the importance of watching Washington in July, when the US budget and tax cut package is expected to be finalised, adding that this move has to convince the market that it is “enough to deal with the deficit and debt sustainability”, or else, this could lead to a “Liz Truss moment”.
As fiscal policy takes centre stage in the US, China and Europe, Villamin believes investors must shift their lens, especially on currencies. “We must think about things in the context of the currency that we save [and spend] in,” he said. “That’s going to be an important shift in how we invest going forward.”
Aside from the fixed income and equities outlook, UBP continues to favour alternative assets in a macro regime marked by inflation, volatility and geopolitical uncertainty. While gold has delivered strong gains and is up nearly 31% year-to-date, Villamin sees increasing value in silver, which he believes is finally catching up.
According to Villamin, there are two key points to the firm’s preference for silver. First is pure valuation. In a gold versus silver comparison, he says: “It used to take 95 ounces of silver to buy an ounce of gold and we thought that was already high. A few weeks ago, it was at 100 ounces. So it’s extremely cheap relative to gold.”
Secondly, it is the industrial component of the demand for silver. With the increasing expansion of the technology and artificial intelligence (AI) industry, as well as the alternative energy space, Villamin points out that these industries will need large amounts of silver to manufacture and produce their electronics, data centres, solar panels and more.
Furthermore, with the fiscal stimulus from countries like China, Germany and the US, he sees industrial spending increasing, boosting the demand for silver.
UBP expects silver to continue its upward trend, driven by inflation hedging, industrial demand and a broader reallocation toward precious metals. The metal has already gained nearly 25% year to date.
Another preferred theme is private credit, which Villamin described as delivering “equity-like returns with debt-like characteristics.” With traditional lenders becoming more conservative, private lenders are stepping in to meet demand, particularly in developed markets like Europe.
“We’re seeing banks become more selective,” says Villamin. “That creates space for private capital to step in, especially where fiscal stimulus is starting to materialise.” UBP sees private credit as a strong complement to fixed-income portfolios, offering both yield and diversification but without full interest rate exposure of government bonds.
