Purchase of government bonds
The interest rate cut cycle is gaining momentum in the USD region. Inflation is expected to decline further, driven by housing and services. In the eurozone, inflation is already below 2%.
Asset Allocation Update: Government bonds are out – or are they?
Government bonds are currently out of favour with investors. However, we see profit potential as the impact of declining inflation outweighs concerns about fiscal deficits in the short term. Contrary to consensus, we are raising the USD to neutral in the short term.
Author: Nicola Grass
What changes have we made to the portfolios?
Bond markets: falling yield curves
Although inflation in the US has risen above 3% again, we believe this is only a temporary increase. Therefore, we consider a low-inflation scenario to be likely – both in the US and globally. Under these circumstances, we expect attractive returns on government bonds (except in Switzerland), as yields could decline. Additionally, governments will need to stabilise their budgets to avoid deterring investors. As a result, portfolios should include more bonds, including those from the US. This also allows for a higher weighting of the USD.
Figure 1: Decline in inflation not yet reflected in yields
Alternative Investments: Pressure on Commodities
We assess the outlook for commodities as moderate, for three reasons:
- In the energy sector, prices are likely to decline to address oversupply, which could align with the US government’s interests.
- In industrial metals, the 25% rise in copper prices this year (5.5% weighting in the BCOM Index) has likely already priced in much of the anticipated demand for electrification.
- For precious metals, we expect a consolidation in the coming weeks following the hype from September to mid-October.
Chart: Weightings Bloomberg Commodity Index
Source: Bloomberg
Equities: Status quo
No changes are planned for equities. We remain slightly overweight as we view economic conditions, earnings growth, and financial conditions as favourable. A hotly debated topic is whether capital expenditures for data centres by major "hyperscalers" will pay off. While these investments are often self-financed, we see signs that financial flexibility may be reaching its limits. Indicators include massive debt financing by companies like Oracle and Meta, as well as the fact that investments now account for 70% of operating cash flow. Nonetheless, the megatrend of artificial intelligence (AI) continues to expand to other companies, both directly and indirectly. As such, IT and pharmaceuticals remain overweight in our portfolios. Regionally, emerging markets, particularly Asia, stand out with their strength in IT and large domestic markets.
Our Tactical Asset Allocation in EUR for November 2025
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