Perspectives Financial Markets

Key findings

• Interest rates/bonds: an interest rate hike by the ECB this week is likely to be followed by another rise in key interest rates in September
• Equities: full speed ahead for semiconductors
• Currencies: interest rate differential suggests the USD will continue to appreciate

The empirical correlation between government bond yields and credit spreads is typically negative, as rising rates often coincide with strong growth and higher inflation expectations, leading to lower default risk and tighter spreads, while the opposite holds during risk-off periods.

This relationship can, however, turn positive when inflation is driven by adverse shocks rather than robust demand – such as supply-side disruptions or rising inflation expectations – forcing central banks to tighten monetary policy despite weakening growth; in such cases, higher rates reflect tighter financial conditions and lead to rising credit risk and wider spreads.

Periods of suppressed risk-free rates have also encouraged a search for yield, compressing spreads. Since mid-2022, spreads have tightened alongside rising 10-year yields but following the Iran war in late February 2026 and higher energy prices, rates have continued to rise, increasing the risk that the correlation could turn positive if rates remain elevated. A prolonged closure of the Strait of Hormuz would further weaken corporate fundamentals via higher energy prices, tighter financial conditions and slower growth, with a stronger impact on eurozone companies than on US peers.

Our base case remains that oil prices will decline in the coming months; we therefore maintain a neutral stance on IG, HY and Swiss IG spreads and expect lower 2-year and 10-year government bond yields in the US, eurozone and Switzerland in June.