The energy market is currently in a particularly delicate balance. On the one hand, fundamentals remain tight, with persistent uncertainty surrounding Middle Eastern production and limited refining capacity. On the other hand, an easing of geopolitical tensions, particularly in Iran, could rapidly improve the supply outlook and alleviate market pressures.
The latest data also point to an acceleration in exports from the Middle East. Thanks to substantial logistical and security efforts, flows appear to be gradually returning to the levels observed before the conflict. This development is encouraging, although its sustainability remains difficult to assess.
At this stage, we have no strong conviction regarding the outcome of the conflict or the timeframe for its resolution. Geopolitical uncertainty remains elevated, and a lasting political solution would be welcome. Current prices continue to incorporate a significant risk premium. In the event of a sustained easing of tensions, prices could decline, although demand is likely to remain robust as inventories, which have been heavily drawn down in recent months, are replenished.
The resilience of the global economy remains remarkable despite escalating geopolitical tensions. In the United States in particular, economic activity continues to display solid momentum, supported by substantial corporate
investment in digital infrastructure, data centres and artificial intelligence. This spending is currently providing meaningful support to growth and could, over the longer term, help accelerate productivity gains.
However, this favourable economic backdrop has coincided with a shift in the bond market regime. The energy shock caused by the closure of the Strait of Hormuz and the rise in refined product prices is sustaining inflationary pressures. As a result, major central banks have adopted a more restrictive stance to prevent a renewed surge in prices and preserve their credibility. This shift has
led to a broad rise in bond yields, which have reached levels not seen in more than 20 years in several countries.
The United States provides a particularly clear illustration of this trend, with the 10-year US Treasury yield now exceeding 5%. At these levels, US bonds once again offer sufficiently attractive returns to compete with risk assets, while providing greater protection in the event of an economic slowdown. We are therefore taking advantage of the rise in yields to increase their weighting in portfolios.
Conversely, higher long-term interest rates have become a source of concern for equity markets. Following their strong advance, several major indices are trading close to record highs, even as the cost of capital increases and bonds re-emerge
as a credible alternative. In our view, the potential upside for equities has therefore become less attractive relative to the risks involved.
Accordingly, we are adopting a more cautious stance towards risk assets. For a balanced Swiss franc portfolio, we are reducing the equity allocation by 3%. US and UK equities are being reduced as a priority, given their sensitivity to interest rates, while Swiss equities are being brought back towards a weighting more closely aligned with their strategic allocation. The proceeds from these adjustments are being reinvested primarily in US bonds, whose current yields significantly improve the portfolios’ risk-return profile.
This week's figure: 4.90%
The rise in French 10-year government bond yields has been particularly pronounced since early September, reaching their highest level since 2002. Against a backdrop of fiscal slippage and with the presidential election approaching next spring, this upward trend could persist.