Monthly Report 06/2026

Confidence in the dollar’s stability is relatively low. On the one hand, there is the high and rapidly rising national debt. The high coupons associated with new issuances amplify this compound interest effect. However, nervousness is rising not only regarding the U.S.’s solvency but also regarding U.S. companies. Lenders have lost a lot of money to companies threatened by AI. That is why some fear a new financial crisis.

It is ideal, then, that Kevin Warsh, a new chairman, is now leading the U.S. Federal Reserve (Fed). He is financially independent of the office itself, as he has a net worth of at least $100 million and his wife holds an investment portfolio of around $2 billion. He once worked as an investment banker at Morgan Stanley and has close ties to Wall Street. This is likely to be of the utmost importance, especially in times of crisis.

But even in “stable” times, he is aware of the distortions caused by Fed interventions, such as continued bond purchases, which are intended to reduce the cost of government debt and blur the lines between monetary and fiscal policy. That is why it remains a mystery why Donald Trump nominated a candidate whose past remarks on monetary policy seem very reasonable and place him in sharp contrast to the U.S. president’s desire for loose monetary policy.

Another currency is somewhat overshadowed by the dollar but is also undergoing change: the British pound. At first glance, government bonds appear more attractive than at any point this century. However, a change in government may be on the horizon. The mayor of Manchester is seeking to succeed Keir Starmer. His pro-spending agenda could put further pressure on bonds and the currency. Meanwhile, the yield on 10-year government bonds stood at 5.2% in May and 4.9% in early June. Bonds with a 30-year maturity even yielded 5.9%, their highest level since 1998. But this is similar to the situation with the Japanese yen.

The high yields are merely harbingers of massive currency devaluations. From 10 francs per pound in the spring of 1972, the exchange rate has fallen to its current level of 1.06. That represents a nearly 90% decline in just over 50 years. With the Japanese yen, we don’t have to look that far back. In the last 12 months alone, the currency has depreciated by 14%. Since the fall of 2021, the cumulative depreciation has been 42%.

Higher interest rates increase the cost of capital. The cost of equity rises because investors demand a higher return for their risk. Interest rates on debt also rise, meaning the total cost of capital increases. As a result, projects that still seemed attractive at lower returns no longer meet this threshold.

On the investment side, there are also considerations regarding this. For instance, the investment firm Berkshire Hathaway is currently investing very little in (volatile) stocks because the interest rates on the dollar capital market alone yield an annual return of 4% to 5% through the safest bonds. The company currently holds $381 billion in “cash” (which includes highly liquid U.S. Treasuries) and is known for its caution during stock market phases when other investors are greedy.

Again: Higher interest rates lead to a higher discount rate in the valuation model, causing future cash flows to be discounted more heavily and thus lowering the discounted cash flow valuation and, consequently, the current valuation of a company or asset. If actual valuations on the stock markets remain the same or even rise, this can be attributed mainly to two causes: Either the vast majority of investors believe that inflation is rising only temporarily, do not raise their inflation expectations, and are not unsettled by short-term fluctuations in the bond markets. This is rarely the case.

Much more common is the second cause: the—at least temporary—decoupling of sentiment between the bond and stock markets. Bond markets tend to be more heavily influenced by concerns and doubts. Ultimately, the key question is whether a bond will be repaid at maturity in x years and whether debt service (interest) can be consistently met until then. In equity markets, by contrast, current observations (the last and current quarters) are projected far into the future; for example, growth rates are extrapolated indefinitely.

The picture in the bond markets is increasingly characterized by divergence—regions, yield curves, sectors, and issuers are drifting apart. Higher effective interest rates and coupons provide protection against volatility in an uncertain economic environment where growth, inflation, and politics depend primarily on the development of energy prices. In this environment, security selection is crucial. The potential of the markets lies in the careful selection of government and corporate bonds. This reinforces the role of bonds as a source of income and a portfolio stabilizer.

In May, European bonds were able to recoup most of the losses recorded in March, as the announcement of a 60-day ceasefire raised hopes for an end to the war and a swift reopening of the Strait of Hormuz. Risk appetite remained supported throughout the month by de-escalation efforts, though doubts about the success of the negotiations surfaced repeatedly. Ultimately, the month ended without any significant improvements in shipping traffic through the strait or any clearly discernible progress on the negotiating front.

As a result, European and U.S. interest rates remained weak despite the more positive sentiment in the AI sector. Nevertheless, they ended May slightly below the decade’s high overall. This is particularly evident in government bond indices. The index for U.S. Treasuries (hedged in CHF) is even lower (-1.7%) than that of Swiss bonds (-1.3%).

Credit markets have remained orderly so far, supported by a favorable default environment, generally solid balance sheets, and limited short-term refinancing needs. These factors are likely to provide significant support should the macroeconomic environment deteriorate beyond a temporary shock. While valuations—consistent with an environment of low default rates—remain high and credit risk premiums are relatively moderate, total returns continue to offer attractive carry income.

Within the bond markets, we are sticking to our strategy of achieving our yield targets primarily through corporate bonds. The best strategy is likely to diversify across different maturities and sectors. You’ll never catch the perfect timing. But when bonds hit the Swiss franc market promising a yield to maturity of 2.1% in May 2051, we’ll jump on them—especially in the case of Amazon. That particular bond is also in the ZIF portfolio due to the issuer’s strong credit rating.

However, we have generally not followed the data center euphoria, but have remained cautious and opportunistic. After all, overcapacity could develop, making it impossible for smaller operators to service the interest and repay the bonds. In the case of an investment (e.g., the 4-year €750 million bond from Polar DC, of which we acquired a portion for the COF), we value the short duration.

Partners Group, for example, is seeing strong demand for infrastructure from institutional investors (pension funds, collective foundations, insurance companies). It began making such investments 15 years ago. Another private market provider is the IFM Global Infrastructure Fund, which is owned by pension funds and also invests a significant portion of long-term retirement savings in the infrastructure sector.

The asset manager IFM Investments has a high profile in the Zurich area because it acquired Green.ch on October 30, 2025, thereby gaining numerous data centers (DCs). Headquartered in Switzerland, Green plans, develops, and operates state-of-the-art data centers for hyperscalers such as Alphabet/Google, Amazon, Microsoft, and, of course, a wide range of corporate clients. The company is a leader in the Swiss market for DC services and benefits from long-term contracts with global cloud providers as well as corporate clients.

The image shows a data center site in Dielsdorf, whose capacity is currently being expanded. Other locations include Lupfig, Glattbrugg, and Schlieren—all around the city of Zurich. The focus is always on achieving the perfect combination of high performance, high security, and high energy efficiency through sustainable concepts. AI development, training, and operations require extreme computing power. This significantly drives up energy consumption per computing unit.

In addition to computing power, the underlying infrastructure (power supply and its resilience, cooling, network capacity, transport/logistics, and availability of semiconductors) is also crucial for scalability, reliability, and costs.

AI workloads increase the demand for affordable, stable energy prices. Carbon footprints and decarbonization also play a significant role. This, in turn, leads to interesting companies in Switzerland (e.g., Belimo for advanced cooling technologies such as immersive cooling). Such companies shape our DecarbRevo strategies.

ABB, Schneider Electric, and Siemens, as well as construction-related companies such as Implenia, Holcim, and Sika, play a key role in the data center market. Even smaller, research-oriented technology companies like Huber + Suhner, which supply high-performance optical switches to large hyperscale data centers, can occupy a specific market niche and are rewarded for it on the capital market.

For the U.S., we used the S&P 500 Index (+9.1% in Swiss francs) as a benchmark, although it is more heavily weighted toward technology stocks than ever before. The broader Dow Jones Index (+4.6%), which is geared toward U.S. consumer spending, did not differ significantly from European indices.

In the first two months, the markets showed a different side. The MSCI Europe gained ground (+4.7% in Swiss francs) while the S&P 500 fell (-2.5%). The MSCI Emerging Markets Index was already performing strongly (+9.5%), although the Indian Nifty 50 (-7.9%) declined. With the war in Iran and the resulting energy price shock, the picture changed rapidly.

Energy-importing countries suffered losses. Poorer emerging economies with energy-intensive production processes, such as India, were hit harder. Inflation, which had fallen to less than 2%, rose rapidly. Consequently, the trade and current account balances shifted quickly, the currency depreciated, and the central bank was forced to raise key interest rates. It had to accept the resulting slowdown in the economy.

Energy-exporting economies like the U.S. were less severely affected than feared. There, too, energy prices rose and eroded household purchasing power, but the momentum from AI-related investments outweighed these effects. Individual companies such as Alphabet (Google) reported in May that their order books had grown by $225 billion in the first quarter. To fulfill these orders, the company will invest around $1 billion on every working day over the next twelve months.

This order volume is partly directed toward the construction industry, which was able to offset the otherwise recessionary trends in the U.S. In the semiconductor industry, however, bottlenecks are emerging, as other companies such as Amazon, Microsoft, Apple, Oracle, and Tesla (xAI) have also increased their investment plans alongside Alphabet. The shortage of memory chips needed to build a data center has driven up the share prices of market-leading manufacturers such as TSMC (+38% year-to-date in CHF), Samsung Electronics (+150%), SK Hynix (+241%), Intel (+204%), and Micron Technology (+228%).

Nvidia’s stock price (+11% year-to-date) is currently in a consolidation phase because, although Nvidia reports impressive growth figures, it “merely” designs semiconductors rather than manufacturing them itself and will need to spend more on future production than in the past.

In principle, it is positive that energy prices are not being driven up speculatively again. Yet this apparent calm is deceptive. Behind the scenes, all manner of scenarios are now being considered. As on the stock markets, one can never be certain whether investors are underestimating or overestimating a situation.

What is certain, however, is that a prolonged shutdown would have far-reaching consequences for energy prices and downstream supply chains. The Swiss commodities trader Mercuria recently pointed out that high prices and shortages would also dampen demand. Poorer countries would reduce demand more quickly than richer ones.

The situation is different in the gas sector. There, it is increasingly important to operate within seasonal cycles. For example, storage levels in Europe are currently about 35% full. Filling them in time for the coming winter is becoming a source of anxiety for traders and suppliers, as over 70% of storage capacity has already been contracted. This leaves a supply gap that needs to be filled at moderate prices.

The war is also disrupting supply chains for fertilizers, helium, and kerosene. The procurement and distribution markets for aviation fuel are unique. The looming shortage during the flight-intensive summer months was largely averted by the rapid conversion of individual refineries. This has also caused airfares to drop again recently, after they skyrocketed in March. Kerosene accounts for between 25% and 40% of ticket costs.

China is holding up relatively well. State-owned oil companies were given the green light to tap into their commercial reserves just a few days after the war broke out. The only restriction was on exports. China began building up a domestic oil reserve sufficient to meet two years’ worth of demand some time ago. These reserves are far larger than those of the U.S., Germany, and Japan combined. And they are stockpiled solely for domestic use, which led to accusations by U.S. Treasury Secretary Scott Bessent that China is an “unreliable global partner.” Conversely, during Donald Trump’s visit, Xi Jinping stated that China does not supply Iran with weapons. And a few days later, China rejected an offer of strategic gas supplies from Russia.