In its latest analysis, UBS sees a calming on the interest rate market. It writes on its website: “After the rollercoaster ride in March, events on the bond market calmed down in April. Interest rates for Swiss government bonds moved sideways for all important maturities. The same applies to mortgage rates.”
However, it is questionable how long this calm will last, she continues. The bond markets still do not know in which direction the central banks will ultimately move. UBS raises the question of whether the central banks will continue to raise their key interest rates strongly in order to break the stubborn core inflation? That would suggest higher interest rates. However, if they feared a banking crisis and a recession, this would imply lower interest rates.
In recent quarters, the markets have fluctuated between these two scenarios, which has led to high volatility in the bond markets. As long as the central banks did not signal that the key interest rate hikes were coming to an end, the uncertainty and thus also the volatility on the interest rate markets would probably continue.
Further interest rate increases by the Swiss National Bank are already expected by the capital market, which means that the yields of government bonds and mortgage interest rates should move sideways or slightly downwards in the coming quarters. However, due to the high level of uncertainty, the bank continues to see this interest rate trend in a wide range.
Sources: Bloomberg, UBS Switzerland AG; Values up to and including 2010 are based on Libor and from 2011 on SARON. The effective interest rate of the product is calculated from margin + Compounded SARON of the respective settlement period. For the calculation of the interest rate, the Compounded SARON can never be less than zero.
