Bond markets gained ground, with monetary policy being eased in Europe and increasingly gloomy economic signals coming from the USA.

Indexed performance of government bonds in local currency

100 = 01.01.2024

After two volatile months, bond markets made gains last month, especially in Switzerland. The easing of monetary policy in Switzerland and the eurozone was a major factor here. Both the Swiss National Bank (SNB) and the European Central Bank (ECB) cut their policy rates by 25 basis points in June. The still challenging economic environment may also have contributed towards keeping capital market interest rates low.

Trend in 10-year yields to maturity

In percent

Capital market interest rates fell in the western industrial nations last month. On the one hand, this was likely to be due to the easing of monetary policy in the eurozone and Switzerland. Europe’s persistent economic weakness and weaker economic signals in the USA were also contributory factors. In Switzerland, yields to maturity on 10-year Swiss federal government bonds stood at below 0.6 percent in early July, while those on 10-year US treasury bonds fell below 4.3 percent.

Credit spreads on corporate bonds

In percentage points

There were no significant changes to credit spreads, which remain at a low level. It is striking that spreads on Swiss corporate bonds have narrowed less significantly since spring 2023 than those in the eurozone and USA. However, risk premiums show little indication of recession in Switzerland, either. That said, the past has shown that the situation can change quickly during an economic slowdown.

Tech-heavy equity markets made very strong gains month-on-month, while European stock markets, in particular, came under pressure owing to political uncertainty surrounding European parliamentary elections.

Indexed stock market performance in Swiss francs

100 = 01.01.2024

Equity markets generally produced a positive performance last month. In particular, tech-heavy stock markets, including those in South Korea and Taiwan, made very strong gains. These equity markets are dominated by companies such as Samsung Electronics and TSMC operating in the chip industry, which is key to the AI boom, and reported positive news on business performance last month. By contrast, political uncertainty after European parliamentary elections weighed on the stock markets in Europe.

Momentum of individual markets

In percent

Equity markets generally lost momentum last month, especially in Europe. European and French parliamentary elections caused uncertainty, resulting in losses on European stock markets and negative momentum on the French equity market for the first time this year. Momentum on Brazil’s stock market remains weak. Concerns over the fiscal situation of Latin America’s biggest economy have led to a downward trend on the Brazilian equity market since early May. 

Price/earnings ratio

Positive performance on equity markets worldwide and in the emerging markets led to a sharp rise in the price/earnings (P/E) ratio month-on-month. However, the P/E ratio only trended sideways on the Swiss equity market last month due to neutral stock market performance. How the P/E ratios develop is set to become more interesting again as the reporting of half-yearly results approaches.

Swiss real estate funds succeeded in reversing the trend last month, making significant gains. This means the performance of Swiss real estate is up by several percentage points again since year-opening.

Indexed performance of Swiss real estate funds

100 = 01.01.2024

Exchange-listed Swiss real estate funds rose sharply in value last month, recovering from their brief setback in April and May. This increase in value was fostered by the substantial fall in Swiss capital market interest rates. Yields to maturity on 10-year Swiss government bonds were still above 0.8 percent in mid-June, before dropping to 0.6 percent by early July. This makes investment in long-term projects and assets such as real estate much more attractive. The recent gains put the year-to-date performance of Swiss real estate funds well into positive territory again. 

Premium on Swiss real estate funds and 10-year yields to maturity

In percent

Investors in exchange-listed real estate usually have to pay a premium on the net asset value (NAV) of properties. This premium has risen again slightly owing to the increase in the value of exchange-listed funds and now stands at around 25 percent. In the past, higher premiums have usually only been observed during periods when interest rates were much lower than they are at present.

Vacancy rate and real estate prices

In percent

The prices of owner-occupied and rental apartments continue to climb. A tight supply situation, reflected in the low vacancy rate, and higher rental income, made possible by two reference interest rate rises, appear to have played a major role. The recent rise in prices was also spurred on by the decline in long-term capital market interest rates. However, prices of single-family homes are currently trending sideways at a high level.

Currencies

While the Swiss franc continues to weaken, depreciating substantially since year-opening, the US dollar gained again last month and remains one of the strongest currencies.

^{Source: Allfunds Tech Solutions}

The Swiss franc had appreciated by almost 2 percent against the euro and by about 1.3 percent against the US dollar by mid-June. However, the Swiss currency had lost these temporary gains again by the end of the month, and stood at a similar level to the end of May. While the Swiss franc’s value looks set to rise again longer-term due to low inflation rates, it has depreciated considerably over the first six months of the year.

The US dollar gained again in June. After briefly displaying weakness in May, the US currency was up by around 1.2 percent last month on a trade-weighted basis. This means the US dollar is continuing its upward trend seen since the start of the year.

^{Source: Allfunds Tech Solutions, Coin Metrics Inc}

Gold

The gold price trended sideways at a high level in June. The US dollar’s continued appreciation also had little effect on demand for the precious metal.

Indexed performance of gold in Swiss francs

100 = 01.01.2024

Demand for gold remains strong. The precious metal’s price has stabilized at a historical high over the past two months, generally fluctuating between 2,300 and 2,400 US dollars per troy ounce. The US dollar’s renewed appreciation in June, which has made buying gold more expensive, did little to subdue demand. Ongoing instability regarding the geopolitical situation, especially in the Middle East, continued to underpin the gold price. A survey conducted by the World Gold Council also indicates that western central banks intend to continue building up their gold reserves over the coming years.