Although Switzerland has largely dropped off the currency war map since abandoning the peg in January, the nation is paving the way as far as firsts for the global economy. Today’s Swiss bond auction of 10-year debt saw the first negative yields for any issuance at a similar maturity. For those unfamiliar with the implications of negative yields, it basically means that investors pay the issuer (Swiss Government) periodic interest payments for the safe return of principle at maturity. At a yield of -0.055%, investors must be concerned enough about the global outlook that they are willing to pay for the protection and safe return of their funds 10-years down the road. While many nations boast negative yields for certain portions of the yield curve, today’s auction marks the first time any issuance with longer than 7-years to maturity has printed below the 0% yield threshold.
Negative interest rates are not new to the monetary policy scene, but negative yields to this degree are a startling new development. Even though the Swiss have managed to avoid an influx of hot money seeking a safe harbor from the coming storm with negative deposit rates, the earlier auction shows the blistering demand for perceived safety assets despite the best efforts of the Central Bank to avoid large external shocks to the economy. While the Swiss National Bank has been targeting a “soft” peg between 1.0500 to 1.1000 for the EURCHF exchange rate, demand for Franc’s has not abated despite the verbal interventions from the SNB President Thomas Jordan. EURCHF continues to trend lower after peaking at 1.0811 on February 20th, now below the unofficial targeted range. The protracted weakness does not look close to lessening with recent CFTC reports showing record shorts in the EURUSD pair. Any reversal lower in EURUSD will likely translate to further pressure on the EURCHF pair to underperform in the near-term with a retest of parity possible.
Switzerland Sees New Record
Andamento del mercato - 08/04/2015