Capital markets

In the aftermath of the historic price falls on international stock markets in 2008, many investors became far more risk-averse – safe government bonds and gold were preferred investment vehicles. By the end of the first quarter risk premiums on the bond market had reached a record level, although the framework conditions for the markets changed appreciably as the year progressed. With the situation in the banking sector also stabilising, investors became more willing to take risks again. Many market segments saw the onset of a marked recovery in March, which has been sustained to date. At the same time, yields on long-dated government bonds increased, although they are still relatively low.

On stock markets, too, the negative trend continued until March of the year under review. The shift in sentiment was attributable to the sharp cuts in key lending rates implemented by the world's major central banks, the various national economic stimulus programmes and bank rescue funds as well as the realisation that after the collapse of Lehman Brothers governments would not allow any more banks of systemic importance to fail.

Driven by an expansionary monetary policy in the year under review, key interest rates fell to new record lows in the euro and pound sterling currency zones. In the United States, Japan and the United Kingdom interest rates were close to zero, while in Europe the ECB slashed the prime rate to 1.0%. At the same time all key central banks massively stepped up their efforts in 2009 to prop up the supply of liquidity to the banking sector.

The US dollar lost ground against other currencies, including the euro, in the year under review. The weakness of the greenback fanned demand for gold, which enjoyed an upward trend in 2009 – the consistency of which was unmatched by any other form of investment – and reached a new record price in December. By year-end the dollar was able to move slightly higher against the euro.