The Wall Street firm upgraded the 5-year securities, known as TIPS, to most preferred from neutral on Wednesday.
The yield on 5-year TIPS hit 2.24% on Wednesday, the highest real yield the sector has seen in over 15 years, said Leslie Falconio, head of fixed income strategy in UBS Americas' chief investment office.
TIPS yields account for inflation, but Treasury yields are nominal and don't take inflation into account.
"While investors were confronted with historically high inflation, TIPS proved to be a disappointment as the interest rate component dramatically underperformed," she said.
Those higher real yields also have been a contributor to rising nominal yields, she said.
Persons:
Leslie Falconio, Falconio, Michael Bloom
Organizations:
UBS, Federal Reserve
Locations:
UBS Americas