Interest rates: A change in direction
Only a few months ago, the dominant question was when the next interest rate cut would arrive. That picture has now reversed. Inflation is more persistent and the economy more resilient than predicted. Expectations of further easing have once again given way to pressure for tighter policy.
In September, the Fed raised its policy rate by 25 basis points, its first increase since 2023. The ECB continued its tightening cycle. The Bank of Japan also raised rates, while the Bank of England has so far remained on hold. Switzerland is the exception, with a policy rate of 0%. Thanks to moderate inflation and a still-strong Swiss franc, the SNB faces little pressure to react yet.
The development of long-term interest rates is particularly noteworthy. The yield on ten-year US Treasuries has once again reached the 5% mark. In addition to inflation, high government deficits, rising refinancing costs and the resulting higher risk premia are playing an increasingly important role. Long-term yields have also risen significantly in Europe and the UK. This creates new opportunities. High-quality corporate bonds once again offer attractive yields without excessive credit risk. By contrast, high-yield spreads remain historically tight and provide only limited compensation for the additional risks.
We therefore do not expect a rapid return to a low-interest-rate environment. Instead, the coming months are likely to be characterised by higher but increasingly differentiated interest rates. This is not necessarily bad news. After years of very low yields, income has once again become a meaningful part of total returns.
