Market development

While yields fell on European government bonds – especially those with short and medium-dated maturities –, they increased in the longer-dated range. Yields on US treasury bonds increased across virtually all maturity segments, sometimes markedly so. The resulting negative fair value effects were, however, more than offset by the reduction in risk premiums for corporate bonds. Overall, this had positive implications for the development of the fair values of the fixed-income portfolio, hence considerably boosting unrealised negative gains in the course of the year. While the US Federal Reserve left its key interest rates unchanged during the period under review at 0.00% to 0.25% after the dramatic cuts of the previous year, the European Central Bank lowered its prime rate incrementally as the year progressed from 2.50% to 1.00%.

The return on ten-year US treasury bonds climbed appreciably from 2.1% to 3.8% in the course of the year. A comparable development was also observed for European government bonds, although in this case the increase from 2.9% to 3.4% was more moderate. Differences in the yield trends of the two currency zones were evident in the short and medium-dated maturity segments. While interest rates on European instruments in this maturity range tended to decline, their US counterparts saw increases. In the area of corporate bonds sharp falls in risk premiums were noted across virtually all credit rating classes and industries in the year under review.

Having scaled back our exposure to listed equities to a marginal holding in the previous year and refrained from any investments whatsoever in this asset class during the year under review, stock market volatility obviously had a very limited effect on our investment income.

The euro moved slightly higher against the US dollar and pound sterling – after substantial fluctuations within the year –, although it lost ground heavily against the Canadian and Australian currencies.