Market overview: Geopolitical escalation weighs on financial markets

Bond markets came under significant pressure over the course of the month, losing the gains they had previously made.

Indexed performance of government bonds in local currency

100 = 01.01.2026

The escalation in the Middle East has not spared the bond markets. Although bonds have historically acted as a safe haven during periods of geopolitical uncertainty, this was not the case last month. Rising oil prices drove up inflation expectations and put government bonds under pressure worldwide. In the USA, a degree of scepticism towards the country’s own position as a debtor is also likely to have contributed to the losses, as both nominal and real interest rates have risen there. By international comparison, the value of Swiss government bonds has also fallen sharply. Government bond prices are currently down by over 1 percent on average over the year.

Trend in 10-year yields to maturity

In percent

In the last few weeks of February, a series of weaker than expected economic data caused yields to maturity in most industrialized nations to fall by around 20 basis points compared to early February. In the USA, 10-year yields to maturity briefly dipped back below the 4 percent mark. However, this downward trend was halted abruptly when the conflict in the Middle East escalated again. The rapid rise in oil prices fuelled global inflation expectations, causing yields to return to their annual highs within a short space of time. As a result, yields to maturity on 10-year US government bonds are currently trading at around 4.2 percent once again. Yields on 10-year Swiss government bonds also rose by around 20 basis points over the course of the month and currently stand at 40 basis points.

Credit spreads on corporate bonds

In percentage points

Credit spreads on corporate bonds barely reacted to the escalation in the Middle East and setbacks on the equity markets. Although spreads rose slightly over the course of the month, they remain close to historical lows compared to the most recent major equity market slump in April of last year. Accordingly, there are still few signs of any real recessionary fears.

Equity prices came under significant pressure following the escalation in the Middle East, particularly in Europe and Asia. In the USA, losses were initially slightly smaller.

Indexed stock market performance in Swiss francs

100 = 01.01.2026

At the start of the year, the stock markets largely shrugged off the numerous geopolitical risks. This changed abruptly following the escalation in the Middle East at the beginning of March. European and Asian markets reacted more sensitively to the rise in oil prices than US stocks. Over the course of the year, it means that equity markets in Europe and the USA have slipped into negative territory. Even Switzerland’s leading index, the SMI, was not immune, despite its defensive nature. After new all-time highs at the end of February, the SMI lost around 3 percent over the month, pushing its annual return just into negative territory. One of the factors weighing on the index was the heavyweight Roche, which fell by over 10 percent after disappointing trial results.

Momentum of individual markets

In percent

By international comparison, momentum on the equity markets fell significantly month-on-month due to the recent price losses. The equity markets in Taiwan and South Korea are an exception. This is remarkable, given that these two markets have been particularly affected by the escalation in the Middle East. Due to their high dependence on energy imports from the region, they lost over 20 percent from their highs in some cases. As both markets managed to make gains over the course of the month, however, their momentum remains clearly positive.

Price/earnings ratio

The price losses on the international equity markets led to a slight reduction in price/earnings ratios over the course of the month. However, valuation levels remain high by historical standards, and the upward trend of recent years appears intact so far.

Exchange-listed Swiss real estate funds fell again over the course of the month, which means they are now also in negative territory for the year to date.

Indexed performance of Swiss real estate funds

100 = 01.01.2026

Exchange-listed Swiss real estate funds fell again over the course of the month. This was likely due in large part to higher capital market interest rates in Switzerland, which had put real estate funds under increasing pressure. Furthermore, the economic situation in Switzerland remains difficult and has not improved recently. With annual returns of just under –2 percent, Swiss real estate funds are currently performing at a similar level to Swiss equities.

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

In percent

The premium paid by investors on exchange-listed real estate funds compared to the net asset value of the underlying properties fell slightly over the course of the month. The main driver is likely to have been the rise in interest rates of around 20 basis points in Switzerland. Nevertheless, the upward trend in the premium, which has lasted for several years, remains intact.

3-month SARON and 10-year yields to maturity

In percent

Inflation in Switzerland has remained unchanged at 0.1 percent for the past two months. The three-month SARON has been just below zero for several months. By contrast, yields to maturity on 10-year Swiss government bonds rose sharply over the course of the month and currently stand at just under 40 basis points. Although a further interest rate cut would be conceivable given the difficult economic environment, the SNB does not seem willing to reintroduce negative interest rates for the time being. Market participants are also not currently expecting a further interest rate cut by the Swiss National Bank.

Currencies

The US dollar recovered after a weak start to the year, while the value of the euro fell sharply against the Swiss franc.

Source: Allfunds Tech Solutions

At the start of the year, the US dollar initially appeared weak, continuing the trend that had dominated the previous year. During the month, however, the US dollar regained ground against most currencies, including the Swiss franc. The euro has recently come under considerable pressure, weakening significantly against the Swiss franc once again. On an annual basis, the euro has lost just under 3 percent against the Swiss franc. At the current level of 0.90 francs per euro, the Swiss National Bank is likely to have intervened to counteract any further appreciation of the franc.

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

Gold

Measured in US dollars, the gold price remains above the mark of 5,000 US dollars per troy ounce. During the month, however, gold served as a safe haven only to a limited extent.

Indexed performance of gold in Swiss francs

100 = 01.01.2026

Over the course of the month, gold recouped most of the losses resulting from the significant price correction at the end of January. The geopolitical turmoil in the Middle East initially drove up the price of gold in US dollars sharply. However, as the US dollar strengthened and yields on the bond markets rose noticeably at the same time, gold lost some of its function as a safe haven. Measured in Swiss francs, the annual return on gold currently stands at 17 percent.