Market overview: Markets tune out

The bond markets continue to be remarkably calm, remaining largely unaffected by either the renewed escalation of the US trade dispute or the recently passed tax legislation. 

Indexed performance of government bonds in local currency

100 = 01.01.2025

The bond markets remained largely stable last month. The exception was the USA, where there was some anxiety following the passing of President Trump’s “big beautiful bill”. The legislation provides for an extension of existing tax benefits and additional relief, but with no major savings. This raised concerns about long-term fiscal stability, reducing the value of government bonds. However, the markets were quick to settle down again. This is likely to some extent because, while the legislation does nothing to improve government debt, it is also not expected to worsen it significantly in the current context.

Trend in 10-year yields to maturity

In percent

Yields to maturity on 10-year government bonds generally trended sideways month-on-month in both the United States and Europe.  In the USA, yields on 10-year government bonds continued to hover around the 4.4 percent mark. In Switzerland, yields to maturity on long-term government bonds rose by 10 basis points to 40 basis points, despite a reduction of 25 basis points in the Swiss National Bank’s policy rate. 

Credit spreads on corporate bonds

In percentage points

Credit spreads on corporate bonds continued to narrow in recent weeks and have now reached their lowest level this year, having risen sharply as recently as April amid tensions surrounding the US trade dispute. The decline is particularly pronounced for corporate bonds with a lower credit standing. Credit spreads are now back close to their historic lows. From the market’s perspective, neither fears of recession nor worries about the trade conflict currently appear to be playing any major role.

The mood on the US stock markets remains upbeat, particularly in tech stocks. In Europe and Switzerland, performance was somewhat weaker compared to the previous month.

Indexed stock market performance in Swiss francs

100 = 01.01.2025

The stock markets last month were boosted by an upturn in US tech stocks. They recovered following significant losses in the wake of the DeepSeek breakthrough at the beginning of the year and April’s US tariff policy, helping the S&P 500 index to reach new all-time highs in local currency terms. Conversely, European stock markets, and the Swiss market in particular, saw a period of relative weakness. Nonetheless, European equities still lead the way in the year to date. Emerging market equities continued their positive trend, bolstered by the weak US dollar and a growing desire for diversifying alternatives to the US stock market.

Momentum of individual markets

In percent

Stock market momentum remains positive worldwide. This month, momentum is again strongest in the emerging markets of South Korea, Brazil and Taiwan. This positive trend is likely due in part to the continued weakness of the US dollar. Historically, emerging market equities in particular have benefited from a weak US dollar. At the same time, momentum on markets with a strong tech sector was also extremely positive. This included the Dutch stock market, which benefited in particular from the recovery of heavyweight Prosus, a company with holdings in the internet and online segment.

Price/earnings ratio

The price/earnings ratio (P/E ratio) rose further last month, particularly in the USA and emerging markets. This is likely due first and foremost to the ongoing stock market recovery. Corporate earnings have remained stable so far. This is likely to focus particular attention on the upcoming second-quarter reporting season for US companies. Although the trade dispute will no doubt have increased production costs in many areas, this has barely been reflected in the inflation data so far. Consequently, there are fears that the additional costs may have been absorbed by company margins. 

Exchange-listed Swiss real estate funds consolidated close to their highs this month. Returns also remain clearly positive on an annual basis.

Indexed performance of Swiss real estate funds

100 = 01.01.2025

Following a brief setback at the beginning of the month, prices of listed Swiss real estate funds then recovered, changing only slightly on a monthly basis. On an annual basis, they continue to be positive, yielding a return of just under 5 percent. Demand for real estate funds likely continues to be underpinned by the current low capital market interest rates in Switzerland.

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

In percent

The premium paid by stock market investors versus the net asset value of properties rose again this month. It is now at its highest level since the beginning of the year and remains well above the long-term average. Although returns on long-term capital market interest rates have risen slightly, they remain just above the zero percent threshold.

Vacancy rate and real estate prices

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

Swiss real estate prices have risen appreciably in recent months. This means the decline in prices for single-family homes and rental properties seen at the beginning of the year has not continued. Prices appear to be resuming their long-term upward trend. A major reason for the increase in value is likely to be the number of newly built residential properties, which clearly continues to be insufficient, with a vacancy rate that is currently only slightly above 1 percent. The ongoing low capital market interest rates and resulting favourable financing conditions may also have bolstered demand for real estate. 

Currencies

Internationally, the US dollar remains weak, losing a further 1.5 percent on a trade-weighted basis. In this context, both the Swiss franc and the euro remain remarkably strong, with each rising significantly against the US dollar again. 

Source: Allfunds Tech Solutions

The US dollar continued to be weak this month, losing another 1.5 percent on a trade-weighted basis. The Swiss franc was particularly strong, gaining another 3 percent against the US dollar. Its annual appreciation against the US dollar now stands at over 12 percent. The Japanese yen was also weak against the Swiss franc this month, losing 4 percent. However, there was little change against the euro, as has been the case throughout the year. 

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

Gold

The gold price, measured in Swiss francs, fell by over 3 percent last month.

Indexed performance of gold in Swiss francs

100 = 01.01.2025

Measured in Swiss francs, the precious metal’s value fell sharply this month. The annual return on gold fell to a still substantial 12 percent, putting the annual return on the precious metal in second place, only slightly behind European equities.