Europe Unfixed Again As Scramble For All Things Swiss Resumes

Tyler Durden's picture

This is what happens when the BIS is limited to buying EUR and selling gold at one time: something leaks. In this case the Swiss 2 year which is plunging to -0.45% sending the curve negative to the 6 year mark, while in Germany the Bund curve is now negative to the 3 year mark. And so Europe is unfixed again - even though the SNB seems to 'love' EUR as it is entirely unable to diversify its reserves which now have surged to 60% EUR as questions over the sustainability of the peg increase.


Swiss (green) and German (blue) yield curves are negative to the 6Y and 3Y maturity respectively...


and from Citi's Steven Englander: On Swiss Reserves...

SNB having more difficulty diversifying than market anticipated

Data showing the currency composition of Swiss reserves suggest the SNB may be having more difficulty diversifying than investors were giving them credit for. The data on end Q2 holdings released today shows, the share of EUR in reserves up to 60% from 51% in Q1. In Figure 3 we show the approximate increase in reserves broken down by currency. Taking into account the overall rise in reserves and changes in valuation, this means the SNB was only able to diversify about 25% of the EUR it bought during Q2. This runs counter to the wisdom that the SNB was a very heavy diversifier, but it looks consistent with the experience of Asian reserves managers who have faced great difficulty in implementing diversification.

The currency implications are two-fold:

  1. There is more ‘wood to chop’ in terms of potential future diversification flows out of EUR into other currencies. This should be positive for alternative reserve currencies such as JPY and GBP, as well as other currencies which the SNB defines as CAD, AUD, SEK, DKK, SGD and KRW. The share of other currencies rose slightly in Q2. Given that these currencies declined over this period, this implies a bit (but not a lot) of active buying by the SNB. It is not clear that an immediate acceleration of SNB buying of these currencies is due in the months ahead, but even a small amount of buying can have a relatively large impact given the limited liquidity for these markets. This should likewise be positive for underlying asset markets, although the bulk of SNB holdings are concentrated in AAA government securities with lesser amounts in equities and other bonds.
  2. This outcome could lead investors to question the sustainability of the peg. The SNB has been unable to diversify a large portion of its euro holdings, so investors may see greater risk of severe capital losses (and potential desperation selling) down the road. Thus investors may be less inclined to believe that the SNB can maintain its present course in the face of mounting pressure. We doubt this will translate to an immediate test of the peg, but this could see increased pressure over time.

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SilverTree's picture


Biosci's picture

Careful.  This unwind probably means a EURUSD dip, and gold down commensurately.  If you're into that sort of thing.

BaBaBouy's picture

YES... SWISS will have to diversify into GOLD,

they are overloaded in EUROS,

and buying dollars is not an option.

Another GOLD buyer in the Line...


GOLD $50K, Bitchies...

malikai's picture

Meanwhile, eurusd cross is trying to break out again today.


UPDATE: Thar she blows.

The Big Ching-aso's picture



Europe would be better off wholly invested in Swiss cheese companies.


FL_Conservative's picture

That's EXACTLY what I want (and expect) to happen.  Time for more physical....BTFD.

Daily Bail's picture

CORZINE CRONYISM BOMBSHELL - High Ranking DOJ Lawyers And AG Eric Holder Were Partners In Firm That Represented MF Global

This is the best story from the past few weeks.

"Calls for a Special Prosecutor for Jon Corzine are growing..."

bank guy in Brussels's picture

Would only end up like with that corrupt fraud of a special US prosecutor Patrick Fitzgerald, back in the last decade, when there was all this talk he would nail the Bush White House and impeach Bush himself ...

And it turned out Fitzgerald was a friend of the Bush family, there was only one mini-charge against Mr 'Scooter' Libby for not kissing up the oligarchs' CIA agency ... Scooter pardoned by Bush of course so did no jail time, while the public was distracted with a circus for a couple years.

From a special prosecutor, the case goes to the bribed American judges, who have to do what they are told, or else end up maybe shot dead like US Federal Judge John Roll blasted to death in Arizona a few days after ruling against Obama and the gov't ... Roll's murder nicely buried by the media ... 'lone gunman' of course, no conspiracy involved, they swear it ...

GeezerGeek's picture

Why anyone would think that the Holder-led DOJ would invesitgate anyone other than Republicans is beyound me. This unflushed leftover from the Clinton administration is as biased as they come. Now we get this, too:

We need a more powerful flushing mechanism.

WillyGroper's picture

65---i'll hold my breath. nice thot tho.

SAT 800's picture

"Europe unfixed again"---Hilarious headline. The basic problem the masters of the universe are having is too many people have awakened and smelled the coffee.

CPL's picture

Panic buying actually to round out the overloaded EUR side of things.

buzzsaw99's picture

b. gross thinks usa t-bonds are going to crash meanwhile the swissy 2y goes negative half a percent. hahahahaha!!

Cangaroo.TNT's picture

Facebook is totally unsurging today.

Dr. Engali's picture

Another $12.00 down and we are near fair value.

CPL's picture

If it goes down 22 and we'll be at what people are willing to pay for it.

Ghordius's picture

interesting, but IMO misleading


1. where is the gold? this is the breakdown of the fiat SNB reserves only

2. why should the SNB have an issue with 77% EUR reserves? 70% of the trade flows they have are with the eurozone countries

Dr. Engali's picture

How the policy makers of an economy the size of Switzerland believes they can maintain that peg is beyond me.

Ghordius's picture

if it were a peg, they would be fucked. but it isn't, it's a floor. they just print and sell fresh CHF when the price is right, and buy it back when it's lower. in theory it can go forever

q99x2's picture

What's an investor?

'We doubt'

Who's "We?" How many people are writing that article?

Why did you use the phrase "could lead?"

The article has too many holes and is suggestive. Please re-write and submit to editor's desk.

ObungaBoy's picture

Guys how long we should read these BS – how the heck making the richest even richer will fix anything

How the heck making more debts and printing more money will help to anyone

Does printing money helped to Greece, Ireland, Portugal ?

How many jobs have been created as result of these idiotic fixes we are witnessing 5 years now

We are in recession, economy is dying, corruption takes monstrous scales and we keep losing jobs    - 5 years now.... what the heck has been fixed during these 5 years

buzzsaw99's picture

how the heck making the richest even richer will fix anything...


There is nothing to fix, the system is working as intended.

toady's picture

Five years of head fakes is pretty extreme, but these paper chasers bite on it every time. They must. It's all they know.

They will be screaming 'turn those machines back on!' When the last one out turns off the lights.

the tower's picture

Without unemployment benefits i'm sure there would be only 5% unemployment..

People are not stimulated to do anything beyond what they did before, or for less money, or just to accept any kind of job just for the hell of it.

Neither is anyone stimulated into setting up a business.

Everything is still overpriced, especially real-estate.

It must all come down.. or by printing, or by cutting all benefits except old-age and (real) disability.

Ted Baker's picture


allocater's picture

Why would the peg ever fall if it is maintained by unlimited printed swiss francs? And who cares if the SNB hold too much euros, they were all free for them anyway. I'll take free 1000€ even if there is a danger that it will fall 50% in value or even 99%

TrustWho's picture

...Dragi prints significant euros...let's see the SNB hold their peg. What a bizarre world we live? 

They think we can control all because we are so smart and they are SO WRONG!

eddiebe's picture

Could it be that the Swiss will be forced to diversify into gold??

Clowns on Acid's picture

eddie - they probably are ( I woud bet definitely), but you won't see those purchases any where near made public.

Quiet , off market purchases thru the London gold ring..... Real price of gold between central banks buyers / sellers is probably 10& higher than is shown to "public".

Tyler.....where are the London gold ring's "public" volume records to be found..?

Snakeeyes's picture

Switzerland has the lowest 2 yr sov yield in Europe. Why wouldn't investors trust Greece and Spain with over 50% under 25 unemployment? /sarc

Peter K's picture

Queston Tyler: Who do you think the Swiss are rooting for in Thursday's showdown between Super Mario's Club Med and Herr Scheuble's Germanic Block?

Unsterilized QE anyone. :)

I Ching's picture

I Miss My Swiss

Fletcher Henderson And His Orchestra - Billy Jones with the Southern Serenaders
Coleman Hawkins (cl,ts); Louis Armstrong (ct); Elmer Chambers, Joe Smith (tp);
Charly Green (tb); Buster Baily (ts) Don Redmann (as,ts,arr); Fletcher Henderson (lead + p);
Charlie Dixon (bj); Ralph Escuderos (tu); Kaiser Marshall (dm); Billy Jones (vcl)
New York City, August 7 1925

But the best version is this one.

Satan's picture

The SNB are sucking in more and more eur/chf shorts...everyone is going on and on about how the floor won't hold.
It has become " a no brainer " trade!

Does anyone thing the Swiss will quietly give up? There is going to be some extreme fucking violence in that chart in both directions. I believe longs, shorts and the SNB are going to get their faces ripped off.