Rates up, rates down or will they remain unchanged – could investors enhance income without having to make a single big call on what the Federal Reserve does next? A new investment idea from Julius Baer offers income potential across different rate scenarios.

A new Fed, but which direction for rates?

The US economy continues to demonstrate resilience, while signs of a softer labour market suggest that wage-driven inflationary pressures have peaked. Although the Federal Reserve is not expected to embark on a rate-hike cycle, visibility remains low. With the new Fed chair displaying a hawkish bias towards inflation while largely refraining from forward guidance, changing expectations could keep interest-rate markets moving. For income-seeking investors, committing to a single interest-rate scenario may therefore be increasingly challenging.

Why choose just one rate scenario?

A floored floating-rate approach offers an interesting alternative. If short-term rates rise, investors can participate in the higher-rate environment up to a predefined cap, reducing interest-rate sensitivity compared with conventional fixed-income securities. Should economic conditions deteriorate and prompt the Fed to cut rates, an embedded coupon floor provides protection by preserving a minimum level of income. This creates the potential for enhanced income across different rate scenarios – without requiring investors to make a single big call on where rates are heading.

Balancing flexibility and risks

The combination of participation in higher short-term rates and protection through a coupon floor can offer a differentiated risk/return profile and a potentially smoother approach to income over time. Such flexibility does not remove risk entirely: participation in rising rates is limited by the cap, while investors remain exposed to issuer credit risk. However, for investors seeking an alternative to traditional money market investments, this balance of income potential and resilience may be worth exploring. With the Fed entering a new chapter, could flexibility help keep your income strategy fit for what comes next?

Find out more about this investment idea.

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The European equity market offers attractive opportunities. Investors can recognize these if they broaden their perspective and look at the smaller economies in addition to the dominant ones.

"Europe is rich in assets and poor in investment" – with this conclusion, the consulting firm McKinsey Global Institute (MGI) published a study a few weeks ago. While large sums of money are being invested in the development of future-oriented technologies in the USA and China, even at the expense of new debt, Europe is holding back. This leads to a situation where, although Europe is in a better position from a balance sheet perspective, the USA and China are ahead in terms of technology.

New initiatives in key technologies

However, one thing should not preclude the other. Precisely because Europe is in a better position balance-sheet-wise, it should invest more, according to the conclusion of the study authors. Said and done. In recent months, the authorities of the European Union have passed numerous initiatives to originate new investments. These initiatives are primarily influenced by the global political situation. Both China and, increasingly, the USA are opting for confrontation instead of cooperation. This necessitates Europe to become more independent of both countries. Therefore, new funding programs have been launched, especially in key technologies such as Artificial Intelligence, microelectronics, quantum technology, and biotechnology. Even if the focus is more on catching up with the USA and China rather than setting one's own accents, the problems have at least been recognized and are now to be eliminated step by step.

Europe has many facets

This gives hope that Europe can convert its balance sheet advantage into a technological catch-up race. If this happens, it is likely to boost the European economy. In any case, the latter is worth a closer look. After all, Europe is not just "Europe". All too often, growth in Europe is seen as synonymous with developments in the dominant economies of Germany, France, and Italy. But this falls short.

This has much to do with the construction of "Europe". Many states, many cultures, many economies, which are not infrequently in completely different stages of economic and cyclical development. Among the countries with the strongest dynamics this year are Malta and Poland, with GDP growth of significantly over three percent compared to the previous year, respectively. Spain and Lithuania also stand out with growth of over two percent each. In this way, these nations can impress not only at the European level but also score points in a global comparison. For the USA, for example, experts see growth of "only" around two percent this year, meaning they may have less to offer than Spain and Lithuania.

And even countries that do not belong to the EU, such as Switzerland, are quite interesting. For instance, the Swiss economy grew surprisingly strongly in the second quarter of 2026, by 1.5 percent compared to the previous quarter. This gives hope for the full year.

European equities as an alternative

Despite clouded growth prospects in the heavyweights Germany, France, and Italy, a look at the European equity market could certainly be worthwhile. This can be shown exemplarily by the Euro Stoxx 50, a broadly diversified index for EU countries. For about three months, the index has been able to outperform its US competitor, the Dow Jones Industrial Average (short: Dow Jones). The Euro Stoxx 50 has seen a gain of nearly eleven percent, while the Dow Jones has seen an increase of just under nine percent (as of: 19.08.2026). This shows that European equities are currently being preferred by investors.

Furthermore, the Euro Stoxx 50 is valued significantly more attractively compared to the Dow Jones; it currently has a forward P/E ratio for the coming twelve months of 18, whereas the Dow Jones has a P/E of over 22—and potentially higher depending on earnings estimates. The higher valuation is, of course, not entirely unfounded, as the USA is leading in many technology sectors, but the gap between "top" and "bottom" could, at least to some extent, close in favor of the European equity market.

Growing political uncertainties also support this – in November, the midterm elections are approaching in the USA, which could lead to a shift in the balance of power to the disadvantage of Donald Trump.

Discover our investment and leveraged products on the Euro Stoxx 50.

For any questions regarding our products, please contact us via phone at +41 58 212 68 50 or via email at markets.ch@bnpparibas.com. Further information can be found on our website at www.bnpparibasmarkets.ch/en. Please be advised that calls will be recorded for quality assurance purposes.

This article constitutes marketing material pursuant to Article 68 of the Swiss Federal Act on Financial Services (FinSA) and is intended for informational purposes only. The information does not constitute an investment recommendation or advice and does not contain an offer, nor an invitation to submit an offer. Reproducing any part of this article in any form without our prior written permission is prohibited, except for the creation of a single copy or excerpt solely for personal, non‑commercial use.

Flat-rate tariffs for telephony and (mobile) data have simplified many things. What used to be subject to fluctuations can now be easily calculated. This makes the telecommunications industry a defensive investment.

Much time has passed since the introduction of the first flat rate in the Swiss telecommunications market, but the new billing method has changed a lot. We remember that in 2005, the provider Orange introduced the first real mobile flat rate in Switzerland under the name "Orange-Maxima". It allowed unlimited calling to the Swiss landline network and to its own Orange mobile network. Swisscom followed in 2012 with a flat rate for unlimited surfing and calling to all networks. For heavy callers at the time, this was a blessing; for the domestic telecom market, it was a breakthrough into a new era. Gradually, the flat rate became standard; besides the landline, it also conquered the mobile market and internet access. Today, over 20 years later, the flat rate is omnipresent and offers flat-rate tariffs independent of time, volume, and access. For sum X, you can chat, message, and surf as much as you want.

Flat rates create predictability

This is not only a very convenient matter for the consumer, but it is also a fine thing for the telecommunications companies that offer flat rates. For what once depended on the whims and moods of consumers – after all, they do not always have a need for communication everywhere and at all times – becomes, thanks to monthly flat-rate tariffs, a fixed and calculable figure in the business numbers. This predictability is extremely helpful for budget planning, setting growth targets, and managing operating costs. Stable cash flows give companies the confidence to invest in product development, support, and customer success. This has a positive effect on customer satisfaction.

Additionally, flat rates help to reduce costs within the company. Individual itemized billing is eliminated in favor of a standardized fixed monthly fee. The error rate drops, customers are more satisfied, and support requests are reduced.

From cyclical to defensive

All of this has contributed to the originally cyclical telecommunications industry becoming a defensive one. What used to be subject to economic fluctuations is now classified by economic experts as being largely independent of the economic cycle. It is true that a defensive character was attributed to telecommunications even in earlier times – true to the motto "people always make phone calls, regardless of how the economy is doing" – but that is only partially correct. When the economy is not doing well, fewer calls are made, especially in the commercial sector. If costs are then billed per call, economic fluctuations certainly have an impact on the telecommunications companies.

More of a utility cost than a usage fee

But flat rates are not the only thing contributing to the stabilization of the telecommunications industry. The fact that today people do not just make phone calls, but that the permanent use of the internet is primarily in the foreground, also contributes to the increasingly defensive character of telecommunications. A contract is concluded via a provider that grants internet access. This is always there, regardless of how often one actually uses the internet in the end. Billing is usually done via a flat rate, meaning the costs correspond less to a usage fee and more to a kind of utility cost (ancillary cost), such as those frequently charged in rental apartments. Utility costs are incurred regardless of whether one is responsible for them or not.

Swisscom, Deutsche Telekom, and Vodafone

How popular flat rates are in Switzerland is shown, among other things, by a quick look at the statistics. According to the Federal Communications Commission "ComCom", market dynamics have been primarily driven by the subscription market for many years. In the process, numerous users have switched from prepaid offers to postpaid products. The proportion of customers with a subscription increased from 63 percent in 2015 to over 84 percent in 2024. Postpaid contracts almost always include flat rates, whereas this is not necessarily the case with prepaid.

The market leader in Switzerland regarding flat rates is Swisscom, with a share of over 50 percent in mobile communications. In Germany, it is Deutsche Telekom, which leads the market with around 28 million postpaid customers, followed by Vodafone with nearly 20 million postpaid contracts (as of Q1 2026).

This article constitutes marketing material pursuant to Article 68 of the Swiss Federal Act on Financial Services (FinSA) and is intended for informational purposes only. The information does not constitute an investment recommendation or advice and does not contain an offer, nor an invitation to submit an offer. Reproducing any part of this article in any form without our prior written permission is prohibited, except for the creation of a single copy or excerpt solely for personal, non‑commercial use.