Yields on government bonds have continued to rise sharply; even in CHF, yields on two-year Swiss Confederation bonds are no longer negative for the first time since 2014. The US interest rate curve is already almost inverted. Lower yields on long versus short maturities have historically been a reliable leading indicator of a recession. Although the business climate indices were surprisingly robust in March, other economic survey figures (ZEW, Sentix and IFO) have fallen sharply. Concerns about recession or even stagflation will hardly disappear in the coming weeks. In addition, the US Federal Reserve has introduced even more aggressive interest rate hikes; 10 interest rate hikes have already been priced in by the market for the next 12 months. Financing conditions have deteriorated due to extended credit premiums and rising mortgage costs.
In view of these considerable headwinds for equities, the current price gains seem too strong for us. Equity valuations are again above the historical average; the premium for equities versus bonds has decreased significantly. We are therefore using the current recovery rally to sell equities. We are now slightly underweight in equities. Regionally, we continue to favour Switzerland, Canada and emerging markets. After the sharp rise in yields, we are reducing our duration underweight. We remain overweight in commodities.