Swiss real estate continues to thrive!
Swiss listed real estate has delivered strong performance this year, gaining over 6%, buoyed by falling interest rates in Switzerland. This upward trend is driven by both rising premiums and the yields of physical assets, whose fundamentals remain robust. After several quiet years, fund managers have resumed capital increases, taking advantage of sustained investor demand. However, this momentum could create some turbulence in the property fund market in the coming weeks. In the medium term, a potential decline in rental income, linked to a possible reduction in the reference interest rate in September, may also slightly weigh on fund results. That said, the prevailing environment of zero or even negative interest rates, along with favourable refinancing conditions, should largely offset these headwinds. As such, we expect the indirect real estate market to continue delivering attractive returns.
Fitch rating agency has downgraded France’s credit rating from AA- to A+. The country thus exits the relatively exclusive club of high-quality debtors and falls into the category of upper-medium grade borrowers. This downgrade reflects growing market concerns over France’s fiscal and political trajectory. The agency highlighted two key factors: on the one hand, persistent political instability, which undermines the government’s ability to implement structural reforms; on the other, a worrying deterioration in public finances. The budget deficit remains high, and total debt, expressed as a percentage of GDP, is following an alarming upward trend, placing France among the most exposed states in the eurozone.
This decision may only be the first step. Other agencies, such as Standard & Poor’s and Moody’s, are expected to reassess France’s rating in the coming months. Further downgrades cannot be ruled out, which would weigh on investor sentiment and increase the cost of government borrowing. However, this risk was already largely priced in; for several months, the European bond market has applied a higher risk premium to French government bonds compared to those of most major eurozone issuers.
Nonetheless, the risk of a major financial crisis remains very limited. The principle of solidarity within the European Union, combined with the European Central Bank’s considerable intervention capacity, provides a powerful safety net. Investors remain confident that Europe’s financial architecture will prevent a break-up scenario akin to the 2011–2012 sovereign debt crisis.
That said, we believe that at current yield levels, French government bonds (OATs) still do not appear attractive. Political uncertainty, fuelled by an increasingly fragmented parliament and ongoing social tensions, suggests enduring volatility. In this context, investors may continue to favour issuers perceived as more stable or wait for higher yields before returning significantly to French debt.
In short, this downgrade highlights the structural challenges France faces and serves as a reminder that fiscal and political credibility remains essential to maintaining market confidence. Without a strong signal of fiscal consolidation, the country risks seeing its borrowing costs rise further over the medium term.
Investors now anticipate three interest rate cuts by the Federal Reserve before the end of the year. Jerome Powell, however, appears inclined toward only two reductions in the federal funds rate, even as pressure mounts for a more substantial easing of US monetary policy.