Hopes of an imminent relaxation of monetary policy, especially in the USA, dominated events on the bond markets until mid-March. However, significant policy rate cuts have become a more distant prospect in view of the faltering decline in inflation. In this context, long-term interest rates have risen sharply again since the end of March.

Indexed performance of government bonds in Swiss francs

100 = 01.01.2024

Government bonds had a volatile month. The optimistic announcement in early March by Jay Powell, US Federal Reserve Chair, that the US central bank may cut policy rates shortly led to a sharp fall in capital market interest rates worldwide. However, the mood of euphoria soon gave way to disillusionment. The unexpectedly strong labour market figures at the end of March and stagnation in US core inflation led to a substantial decline in the value of government bonds. However, in Swiss franc terms, this was a positive development on account of the weak Swiss currency.

Trend in 10-year yields to maturity

In percent

Capital market interest rates peaked for the year in early April due to stagnating inflation in the USA. In the USA, 10-year yields to maturity now stand at over 4.5 percent again, their highest level since mid-November 2023. Long-term interest rates have also risen in Switzerland despite the policy rate cut. The yield to maturity on 10-year Swiss government bonds now stands at almost 0.7 percent again, after briefly dropping to below 0.55 percent.

Credit spreads on corporate bonds

In percentage points

Credit spreads on corporate bonds in the eurozone and USA narrowed again last month. These spreads narrowed less in Switzerland. Credit spreads on Swiss corporate bonds remain at a higher level than those in the USA and eurozone in historical terms.

Although long-term interest rates have risen sharply since year-opening, the equity markets continued their upward trend in March. However, they began to falter in April due to the stagnating decline in inflation in the USA.

Indexed stock market performance in Swiss francs

100 = 01.01.2024

Equity markets made gains again last month. Strikingly, it isn’t just tech stocks, previously the driving force behind the equity market rally, that have continued to rise, but prices in other sectors too. That means market development is now more broad-based. In particular, the energy sector, boosted by higher energy prices, gained momentum last month. This was reflected on the UK’s commodity-heavy equity market, which was among the best-performing. China’s stock market also continued its recovery. However, momentum on equity markets worldwide began to falter in April. Fortunately, this had little impact on Swiss investors as the weak Swiss franc meant additional positive returns were generated.

Momentum of individual markets

In percent

The continuation of the equity market rally is also reflected in the strength of momentum. With the exception of Brazil, momentum on the equity markets is currently in positive territory across the board. While momentum on the US stock market remains consistently robust, it has faltered in Japan. The turnaround in monetary policy and likelihood of the Japanese yen appreciating weighed on the market.

Price/earnings ratio

The price/earnings ratio of the equity markets improved again last month. This was mainly due to renewed positive equity market performance, which was particularly strong in the USA and emerging markets. In contrast, the positive P/E ratio trend is less pronounced in Switzerland, primarily due to the more moderate performance of the domestic equity market.

Swiss real estate funds made further gains last month. The SNB’s rather surprising decision to cut its policy rate was a key contributory factor.

Indexed performance of Swiss real estate funds

100 = 01.01.2024

Exchange-listed Swiss real estate funds have continued their sustained upward trend since November 2023, and their value rose again in March. There are various reasons for the strong performance in recent months. Greater leeway in rental prices had a positive effect on expected returns. The SNB’s rather surprising decision to cut its policy rate also makes cash holdings less attractive and increases the incentive to invest in long-term assets such as real estate. 

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 with the properties’ net asset value has risen again over recent months after a sharp downturn during the COVID-19 pandemic. The rise in the premium has been underpinned by the fall in long-term interest rates since last autumn. However, given the current yield to maturity of just under 0.7 percent on 10-year Swiss government bonds at a policy rate of 1.5 percent, this now looks to have reached a low point.

Vacancy rate and real estate prices

100 = January 2000 (left) and in percent (right)

After a slight reversal in the third quarter of  2023, the prices of single-family homes and owner-occupied apartments climbed again at the end of the year. The sharp fall in capital market interest rates in December 2023 was a major contributory factor. Lower interest rates usually mean higher valuations. Rental properties have also gone up in value. In addition to the interest effect, greater leeway for rent rises also had a positive impact.

Currencies

The Swiss franc is continuing to depreciate and this trend looks set to continue for the time being given the monetary policy decisions in Switzerland and Japan. However, the franc should regain its usual strength in the medium term.

^{Source: Allfunds Tech Solutions}

After making strong gains towards the end of 2023, the Swiss franc depreciated considerably during the first quarter of 2024. This development was supported by the SNB’s monetary policy decision in March after a surprising cut to its policy rate. The Swiss currency’s weakness may continue over the coming months, but the franc is expected to appreciate over the medium term due to low inflation.

The Japanese yen, which has been on a sharp downward trend over recent years, stabilized in March. By raising its policy rate, the Japanese central bank began a turnaround in monetary policy and the authorities indicated their desire to support the undervalued Japanese currency.

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

Gold

The gold price rose again in March, recently reaching a new all-time high of 2,350 US dollars per troy ounce. This is due to greater demand for secure investments.

Indexed performance of gold in Swiss francs

100 = 01.01.2024

In times of crisis, gold is considered a very secure investment and tends to rise in value during periods of greater uncertainty. The conflict in the Middle East and fears over further escalation have underpinned the rise in the precious metal’s value. As gold is also a popular investment for protection against inflation, the persistently high inflation rates, especially in the USA, are another factor explaining the sharp rise in the gold price.