Growing fears over the economy and growing expectations that monetary policy would be eased in the USA in September led to another sharp fall in long-term interest rates, particularly in the USA.

Indexed performance of government bonds in local currency

100 = 01.01.2024

In the wake of market turmoil, long-term interest rates in the USA, but in Europe too, began falling sharply in early August. Last month’s further declines are likely to have been prompted by growing signs of an economic slowdown in the USA, fuelling expectations that monetary policy will be eased in September. Accordingly, US government bonds made the strongest gains last month, while the performance of their Swiss counterparts, in particular, was largely unchanged.

Trend in 10-year yields to maturity

In percent

Long-term interest rates continued to fall considerably in the USA, but declined further in Europe, too. 10-year yields to maturity on US government bonds are now at almost 3.6 percent, returning to the level before the cycle of interest rate rises began in spring 2022. Swiss government bonds remained largely unaffected by this development. 10-year Swiss Confederation bonds are still yielding just under 0.4 percent, which is their lowest level since August 2022.

Credit spreads on corporate bonds

In percentage points

Growing concerns over the economy both in the USA and the eurozone, particularly in early August, were reflected in a widening of spreads on corporate bonds. After a brief lull, spreads returned to a higher level by early September, albeit lower than at the start of August. However, they are still remarkably low by historical standards.

The recovery after the downturn in early August was very brief. The equity markets suffered another setback in early September, mainly due to fears over the economy in the USA again.

Indexed stock market performance in Swiss francs

100 = 01.01.2024

After the sharp downturn in August, a strong recovery was made, in large part bringing the equity markets close to the high levels of mid-July again by the end of the month. With sentiment in industry deteriorating in the USA and the continued slowdown on the labour market, global equity markets fell again in September. The Japanese equity market suffered a major setback, dropping by over 4 percent. The equity markets were nevertheless generally up again month-on-month. This development was not so favourable for Swiss investors as the Swiss franc appreciated at the same time. 

Momentum of individual markets

In percent

While momentum on the equity markets is slightly more positive again compared to the previous month, it’s much weaker than during the first half of the year. The fact that momentum remains well into negative territory in the Netherlands is particularly striking. This is mainly due to the failure of index heavyweight ASML, a major supplier to the semi-conductor industry, to recover from the downturn in early August.

Price/earnings ratio

The price trend on the equity markets also had a major impact on the price/earnings (P/E) ratio last month. P/E ratios worldwide and in Switzerland rose significantly by the end of August before dropping sharply again in September due to another market correction. The recovery in emerging markets was less robust in August overall, with a fall in the P/E ratio actually being recorded month-on-month.

Swiss real estate funds maintained their level last month and have continued to post a strong increase in value since year-opening.

Indexed performance of Swiss real estate funds

100 = 01.01.2024

Exchange-traded Swiss real estate funds rose by around 2 percentage points in August, before giving up these gains again in early September. This means price performance has remained stable overall over the last four weeks. It’s interesting to note that Swiss real estate funds didn’t benefit from the upturn on the global real estate markets. The fall in global capital market interest rates led to substantial price gains, particularly in the USA and Europe. This may be another indication that potential for further gains on the Swiss real estate market has gradually been exhausted.

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. Historically, this premium has been closely linked to long-term capital market interest rates. The premium is usually low during times of high interest rates as long-term investments are less attractive. Conversely, premiums often rise when interest rates decrease. Compared with the level of the past 20 years, the current level of premium seems quite high. In the past, even higher levels have only been reached during phases of much lower capital market interest rates.

Three-month SARON and 10-year yields to maturity

In percent

The level of interest rates in Switzerland has fallen significantly since year-opening. This is partly due to the Swiss National Bank’s (SNB) decision to cut its policy rate twice to ease conditions on the short-term money market. Further declines in long-term capital market interest rates is another factor. For example, the yield on 10-year Swiss government bonds is now only around 0.4 percent. This is remarkably low in view of the current inflation rate at around 1 percent and a policy rate of 1.25 percent. This means there looks to be limited scope for further falls in capital market interest rates. By contrast, market participants expect the SNB to continue easing interest conditions on the short-term money market over the coming months.

Currencies

As in the previous month, both the Swiss franc and Japanese yen appreciated again in August. The US dollar fell sharply again.

^{Source: Allfunds Tech Solutions}

The Swiss franc continued its upward trend of recent months despite depreciating briefly in mid-August. This means the Swiss currency has recouped the losses suffered during the opening months of 2024 and recently reached a similar level to year-opening against the currencies of its key trading partners. Over the course of the month, the Swiss franc gained by around 3 percent against the US dollar, which had a very weak month, falling by 3.7 percent on a trade-weighted basis. The Japanese yen also made further gains in August, reaching 142 yen to the US dollar by early September. By comparison, it stood at 150 yen to the US dollar at the start of August. However, the heavily undervalued Japanese currency still has significant upside potential.

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

Gold

The gold price hit a new all-time high of just over 2,500 US dollars per troy ounce in mid-August, but has since trended sideways. 

Indexed performance of gold in Swiss francs

100 = 01.01.2024

Demand for gold remains very strong. In early and mid-August, the precious metal traded in US dollars made further gains, hitting a new all-time high of just over 2,500 US dollars per troy ounce. As well as signs of a global economic slowdown and lower interest rate expectations, which have a positive effect on non-interest-bearing investments like gold, the US dollar’s weakness may also have contributed to the increase in value. In Swiss franc terms, the gold price has been trending sideways for several months.