Portfolio management in Switzerland in 2025: adapting to the ups and downs of breaking news on an almost daily basis
The interest rate factor was only one of the elements in the financial equation in 2025 for the performance of asset classes. In 2025, growth prospects and risks were variables that had a greater influence on the markets. Indeed, we have moved to a market of pure sentiment, between euphoria before President Trump's inauguration, panic after the announcement of tariffs, followed by a period of calm, and new fears since mid-June. For example, US interest rate expectations for December 2025 are currently 3.9%, i.e. two rate cuts, which is exactly the level already expected in January. These expectations for December 2025 fell to 3.3% after the announcement of the tariffs, linked to the sudden increase in the probability of a recession. This led to a major fall in the equity markets, and the US 10-year yield moved to 4.0%. Then an equally major recovery of over 20% in the US index and a rebound in yields to 4.5% were observed, while interest rate expectations for December rose by 60 basis points, wiping out more than two expected rate cuts in less than two months. We cannot say that interest rates rule the market!
 | Nicolas Bickel Group Head of Investment Private Banking & CIO, Edmond de Rothschild |
 | Hervé Prettre Head of Global Investment Research, Edmond de Rothschild |
Regarding sovereign bonds, a deep-rooted sentiment seems to be emerging: investors are wary of the continuing high levels of debt and deficits in the United States, Japan and Europe. Indeed, the widening of long-term deficits is scaring off investors, who are demanding a higher term premium. The US 30-year sovereign yield is close to 5%, the highest level since 2007, but this level has not attracted many investors. The same is true of German 30-year bunds, which are yielding almost 3%, their highest since 2011, but whose price is stagnating. Only the Swiss 30-year remains at 0.5%, as no one sees the Swiss Confederation embarking on a wave of major public works and deficits. The large deficits expected are a result of the Trump administration's tax measures and Germany's infrastructure worth 20% of the country's GDP over 10 years, which should keep long-term rates high. Gold and the dollar are also decorrelating to interest rates, with here also sentiment prevailing. For fixed income management in Switzerland, this means favouring bonds in euros and dollars, with currency hedging, focusing on rather short maturities, i.e. less exposed to the rise in bond supply. We still prefer corporate bonds to government bonds, as their cash flow prospects remain solid. A Microsoft or a Siemens does not resort to massive deficits!
Outlook 2025: for the time being, US inflation remains moderate, so Fed rates could be cut again as early as September. However, this will depend very much on the final levels of tariffs and the size of the US budget deficit. It is not possible to predict these at this stage. Europe offers greater visibility and lower inflation, but uncertainties remain over the defence budget, the German infrastructure plan and the impact on inflation of geopolitical unrest in the Middle East. It is therefore also difficult to model the path of inflation and interest rates in 2025. Switzerland stands out for having inflation close to zero, due to a strong franc that is leading to imported deflation. It seems very likely that interest rates will move back into negative territory, which will weigh on bond yields. Against this backdrop, our long-term strategy continues to favour equities over bonds. We are diversifying our portfolios as much as possible to limit any idiosyncratic risk. In terms of bond selection, we are sticking to shorter maturities in Europe and the US, and do not hesitate to add medium-quality issues in search of yield. In addition, market volatility offers opportunities for bond alternatives, such as structured products offering attractive coupons on days when volatility spikes.
What strategy(ies) should we adopt? We remain very cautious and try to maintain a fundamental approach in a market driven by sentiment. For example, in the event of massive falls in equities on the back of panic movements linked to chaotic political decisions, we increase our equity exposure, believing in the end that the solid long-term fundamentals of companies will prevail over current news. Conversely, in the event of exuberance about the next "golden age of America" (quote from Donald Trump), we are taking some of our profits. On the bond front, too, we are looking for attractive-yielding issues penalised by excessive investor pessimism.
In the long term, we believe that interest rates will normalise: the widening of deficits and the relocation of production make it unlikely that negative rates will return, except in Switzerland, a country "protected" from inflation by its currency, which is popular in times of deficits in the US and Germany. In the long term, we think that rates should remain moderate thanks to the deflationary impact of AI, increased automation and potentially a less forced march towards the energy transition. However, this does not necessarily mean that bond yields will stabilise. The big question for US yields remains the de-dollarisation of foreign exchange reserves, which could reduce foreign demand for T-bonds and push up US bond yields. Similarly, the exact level of deficits will be crucial for US yields. In Europe, higher public investment spending, should it come together with the political courage to rein in deficits, would help to lower bond yields. However, it is likely that spending on infrastructure and defense will come on top of current spending. Long-term bond yields could therefore be subject to a higher risk premium than in the past. Switzerland is likely to remain an exception, and to continue to benefit from low interest rates, despite attempts by the Swiss National Bank to weaken the Swiss franc.
In these conditions, building a portfolio that takes advantage of moderate but volatile interest rates in Europe and negative rates in Switzerland, with economic growth boosted by deficits, seems to us to be the best strategy. This justifies our exposure to Swiss and European equities, particularly the financial sector, which should be supported by the steepening yield curves and stimulus plans that are helping credit distribution, to Swiss property, to European corporate credit and to alternatives such as gold and hedge funds.
Biographies
Nicolas Bickel, Group Head of Investment Private Banking &CIO at Edmond de Rothschild, oversees all discretionary management and investment advisory activities for Private Banking clients, working closely with local market CIOs, Advisory and discretionary management teams. Nicolas has almost 20 years' experience in finance, particularly in advisory and investment activities. He holds a CFA and a BBA in economics from the Haute Ecole de Gestion in Geneva.
Hervé Prettre has been Head of Global Investment Research at Edmond de Rothschild Geneva since 2020. Previously, he was Head of Advisory to External Asset Managers for French-speaking Switzerland for Credit Suisse Geneva, having previously headed thematic research at Credit Suisse Zurich. He holds a Master's degree from the Ecole Supérieure de Commerce de Paris (ESCP Europe).