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Bond markets The markets for fixed-interest securities essen- tially moved in the opposite direction of the stock markets. Un- til March 2003, investors decidedly clamored for quality bonds. The main beneficiaries of this aversion to risk were government bonds. Their yields for ten-year maturities slipped to historic lows: 3.3 percent in Germany and 3.1 percent in the U.S.A. This trend was supported by the central banks’ cheap money policy: The U.S. Federal Reserve lowered its funds rate to 1 per- cent, while the European Central Bank cut its prime rate to 2 percent. Fears of deflation helped to accelerate the decline in yield of fixed-interest paper. When these fears had vanished and the word “inflation” once again made the rounds in the second half of the year, fixed-interest securities came under heavy pres- sure. In only six weeks, yields climbed 130 basis points in the U.S.A. and 80 in Germany. At the end of the year, bond mar- kets closed with a slight plus at the long end. 

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Currencies Despite the insecurity at the beginning of 2003 over the course of events in Iraq, the U.S. dollar was relatively weak with respect to the euro. After the proclamation of the end of the war, a strong revaluation of the euro got underway. While the exchange rate dipped slightly in the summer, it came back with renewed force in September and climbed to new heights over the dollar. Over the entire reporting year, the value of the euro increased more than 15 percent with respect to the dollar. The euro also gained 8.3 percent on the pound sterling and 7 percent on the Swiss franc. 

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