US Treasury bonds were downgraded by Moody’s at the end of last week. The move was anticipated, as all other rating agencies had already withdrawn their highest rating (AAA) on US debt. The exclusive club of the world’s most creditworthy countries now counts only a small dozen members, including Switzerland.
For now, the US bond market has absorbed the news without major turmoil, except on the longest maturities. The 30-year Treasury yield has hit a 2025 high by breaching the symbolic 5% threshold. It is now nearing its recent peak of October 2023 (5.15%), a level not seen since the summer of 2007.
This pressure on ultra-long maturities likely reflects investor concern over the US budget deficit and debt, whose trajectories continue to deteriorate. Market scepticism is also fuelled by uncertainties surrounding Donald Trump’s policies.
The economic impact of this tension will likely be felt primarily in the real estate market, since in the US, new mortgage loans are indexed to the 30-year government bond rate. On the other hand, companies typically secure financing with maturities shorter than 10 years.
The Swiss pharmaceutical industry is facing challenging times. After Donald Trump threatened to impose prohibitive tariffs on imports from Switzerland, the US president now aims to enforce significant price reductions on drugs sold in the United States. The first of these two measures would cut into the profitability of pharmaceutical companies, while the second would more directly impact their revenues. The effect is particularly significant given the substantial contribution of the US market to the sector’s income. For both Roche and Novartis, over half of their sales are generated across the Atlantic. It is thus easy to understand the recent underperformance of these two stocks, which have dragged down the SPI index since the beginning of April.
But can Donald Trump actually impose price controls on the pharmaceutical sector? It's true that drug prices in the US are strikingly high, on average, 2.5 times higher than in Europe. This pricing disparity is at the heart of Trump’s outrage.
While the intention to reduce the costs of the US healthcare system may be commendable, it is highly unlikely that the president’s proposed measures can be effectively implemented. He is not the first president to take on this issue. Before Trump, both Hillary Clinton and Barack Obama attempted to tackle the powerful US pharmaceutical lobby, without success. Historically, it has been the Democrats who have tried, and failed, to control drug prices, while Republicans have fiercely opposed such initiatives. Currently, both Congress and the US Supreme Court are controlled by conservatives, who are likely to strike down any presidential effort in this direction. The more extreme the measures proposed, the more likely they are to be blocked in court, as has happened in the past.
Trump appears to have already moderated his stance. The initial announcement to reduce prices “by 30% to 80% immediately” has given way to a more tempered message. Pharmaceutical companies now have six months to align their US prices with those in international markets. However, this requirement entirely misses the mark, it will likely lead to higher drug prices outside the US, with no real benefit to American patients.
The swift rebound in pharmaceutical stocks illustrates how little credibility investors assign to these proposed reforms. Still, pharmaceutical equities may remain volatile in the coming months. For investors looking to avoid this volatility while staying exposed to the healthcare sector, we recommend focusing on medical equipment companies in Switzerland and the US (dental implants, orthopaedics, surgical instruments), which are not affected by the potential regulatory changes ahead.
The number of days it took for the global stock index to fully retrace the correction that began on the day of the release. The rebound that followed was so strong that the index is now trading more than 5% above the level observed on April 2nd.