Market overview: Countermove

While US bond markets remained at the previous month’s level, the trade conflict clearly led to increased demand for European bonds, which gained in value month-on-month.

Indexed performance of government bonds in local currency

100 = 01.01.2025

The bond markets in Europe and the USA posted differing performance last month. European government bonds saw greater demand in light of increased uncertainty in the USA and a more supportive monetary policy in Europe. Government bonds in Europe and Switzerland continued to gain in value, whereas the performance of US government bonds was virtually unchanged month-on-month. The trend in Switzerland was particularly striking. The announced inflation rate of 0 percent fuelled concerns about a return to negative interest rates. As a result, yields to maturity fell significantly across large parts of the yield curve, with the curve up to a maturity of five years falling back below zero at times.

Trend in 10-year yields to maturity

In percent

In the USA, the announcement of comprehensive import tariffs was followed by a brief, sharp rise in yields to maturity. The markets clearly responded with concern to the aggressive economic and trade policies, and the resulting ongoing inflationary pressure. However, the subsequent pause in tariffs and hopes that the tariff conflict would not escalate to the extent feared led to an easing of tensions, which meant that the rise in interest rates was largely corrected. Yields to maturity of 10-year government bonds are now back at the 4.3 percent level. In Europe, by contrast, yields to maturity are down 10 to 20 basis points month-on-month. In Switzerland, 10-year Swiss government bonds are yielding around 0.30 percent, only just above zero.

Credit spreads on corporate bonds

In percentage points

The ramifications of the trade conflict continue to be felt on the corporate bond markets. Yield spreads remain high against a backdrop of increased uncertainty. Unlike the equity markets, which have almost fully recovered, there has been no comparable easing of tensions on the corporate bond markets to date. However, risk premiums remain below the levels typically seen in times of recession.

Last month, equity markets recovered from their sharp decline triggered by the US trade dispute. European markets, in particular, saw a significant recovery and are now trading back above their year-opening price levels.

Indexed stock market performance in Swiss francs

100 = 01.01.2025

Global stock markets performed well last month, fuelled by a general sense of optimism. The mood improved significantly on hopes of agreement in the trade talks, in particular between the USA and China. The upbeat market sentiment was bolstered by generally favourable corporate reporting. Most European stock markets have since returned to positive territory. Despite the increase in US tariffs on Chinese goods and China’s subsequent retaliatory measures, emerging market stocks also proved surprisingly resilient. US stock markets likewise picked up strongly over the month. However, the major indices continue to show negative returns for the year as a whole. Given the strength of the franc, this was only of limited benefit to Swiss investors.

Momentum of individual markets

In percent

Momentum on most stock markets returned to positive territory last month. The announcement of a 90-day pause in reciprocal tariffs looks to have raised hopes of an early resolution to the trade conflict and is likely to have contributed significantly to the recovery. Markets with large tech sectors, such as the USA and Taiwan, continue to be outliers. These stock markets are not only trading below their highs for the year, but also beneath their year-opening levels.

Price/earnings ratio

With the strong recovery in stock market prices last month, price/earnings ratios (P/E ratios) are currently back at a level similar to the end of March. P/E ratios in emerging markets in particular have risen significantly, which is likely largely in response to price performance. Prices not only fell less sharply during April’s market turmoil, they are also now back at this year’s highs reached in March. 

While Swiss real estate funds were not entirely spared the market turmoil in April, they did recover strongly this month.

Indexed performance of Swiss real estate funds

100 = 01.01.2025

Like the stock markets, Swiss real estate funds recovered from the turbulence on the markets this month. It means the annual performance of real estate funds is now over 3 percent for the year as a whole, clearly back in positive territory. The decline in capital market interest rates in Switzerland to just under 30 basis points is likely to have helped to maintain robust demand for real estate funds.

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

In percent

The positive performance of exchange-listed Swiss real estate funds led to another increase in the premium that investors usually have to pay on the stock exchange versus the actual net asset value (NAV) of properties. These premiums are now back near their highs for the year to date and remain above the historical average.

Three-month SARON and 10-year yields to maturity

In percent

Yields to maturity on 10-year Swiss government bonds fell significantly again last month following a brief rise. Whereas yields to maturity were initially just under 50 basis points, they stood at just 20 basis points at the end of April. Long-term interest rates remain above the 3-month SARON. This difference is likely to widen further, as inflation in Switzerland is now at 0 percent and market participants are expecting the Swiss National Bank to cut interest rates further.

Currencies

The US dollar was weak again this month. Conversely, the Swiss franc remains in demand and made significant gains against the US dollar once more.

Source: Allfunds Tech Solutions

The Swiss franc gained a further 4 percent against the US dollar this month and is trading at its highest level for 15 years. Against the euro, the Swiss franc remained stable. Despite the severe weakening of the US dollar in recent weeks and months, the American currency remains overvalued on a trade-weighted basis measured by purchasing power parity.

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

Gold

The gold price, measured in Swiss francs, rose almost to its highest level again last month.

Indexed performance of gold in Swiss francs

100 = 01.01.2025

Towards the end of the month, the precious metal recouped the losses suffered at the beginning of the month. This puts the precious metal’s annual return back well above 15 percent, still clearly outperforming most stock markets.