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Meanwhile In Switzerland...

Tyler Durden's picture




 

... The entire bond curve through the 5 year point is now negative (for the first time ever). At this rate, courtesy of the FX peg and the SNB's free put option, whereby EURs are converted into CHFs at a furious pace even as the facade of a collapsing Eurozone is itself crumbling, and the proceeds are use to buy Swiss bonds ever further into negative territory, we may soon have an entire bond curve trading at negative territory. Which, paradoxically, would lead to that Keynesian wet dream: the more debt Switzerland issues, the more money it would make courtesy of negative interest expense, literally, and the faster it would pay down its debt. Curiously, this may not be a bad offset to losses that the SNB is currently experiencing due to its currency peg. And some thought bizarro world was a sitcom construct.

Chart: BBG

 

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Tue, 06/12/2012 - 11:34 | 2518141 Peter K
Peter K's picture

More Free Money:) I mean really free free money:)))))

Tue, 06/12/2012 - 11:37 | 2518151 Colombian Gringo
Colombian Gringo's picture

Yodeling for money.

Tue, 06/12/2012 - 11:37 | 2518164 SilverTree
SilverTree's picture

Gold is rockin-and-rolling today!

Tue, 06/12/2012 - 11:45 | 2518197 Sophist Economicus
Sophist Economicus's picture

Shhhhh!

Tue, 06/12/2012 - 11:45 | 2518202 GOSPLAN HERO
Tue, 06/12/2012 - 11:52 | 2518236 xela2200
xela2200's picture

It is finally behaving as expected. Europe bad should be good for gold. Not the other way around.

Tue, 06/12/2012 - 12:16 | 2518327 Cyrano de Bivouac
Cyrano de Bivouac's picture

Why doesn't the SNB buy gold?

Tue, 06/12/2012 - 12:17 | 2518340 Ghordius
Ghordius's picture

mainly because Uncle Sam would get mad at the Confederates. He already pushed them to sell quite a lot of their shiny in 2000. But since he is pushing them a lot, lately, eventually they could lose their tempers...

Tue, 06/12/2012 - 12:28 | 2518372 jus_lite_reading
jus_lite_reading's picture

I paid myself back the $40 I owed myself and then splurged the $40 on a steak dinner with mashed potato pie. Then borrow some more from myself. Making money the easy way has never been easier. 

Tue, 06/12/2012 - 17:53 | 2519696 CHX
CHX's picture

Because they want to keep a fixed exchange rate to the Euro. (1 Euro ~ 1.2 CHF). The surrounding EU-zone is Switzerland's' most important trading partner, and as S. export of high quality industrial goods and tourism are important to the CH economy, an overly strong CHF is "bad for the economy". Last summer, the EUROCHF fell as low as 1.05 and exporters were outcrying loudly. So they enganged in the currency war, and started that peg last September (same time when the major gold-smackdown occured from the last all-time high in USDs).

Tue, 06/12/2012 - 11:38 | 2518167 SHEEPFUKKER
SHEEPFUKKER's picture

Negative free money.....even better than just plain ole' free money. 

Tue, 06/12/2012 - 11:51 | 2518230 disabledvet
disabledvet's picture

"Pay to play" meets "Pay to pay."

Wed, 06/13/2012 - 01:11 | 2520499 GMadScientist
GMadScientist's picture

More like "pay to keep your savings from melting down to syrup".

Tue, 06/12/2012 - 11:38 | 2518153 Captain Benny
Captain Benny's picture

I'm not a bond junkie, but I've got to wonder why the 3 month is actually positive.  Is there some kind of currency swap situation that enables this?

 

The true value of currencies measured in Gold is falling fast.  Gold is about to erupt...

Tue, 06/12/2012 - 11:52 | 2518234 disabledvet
disabledvet's picture

MASSIVE short covering.

Tue, 06/12/2012 - 11:55 | 2518254 DeadFred
DeadFred's picture

The SNB meets Thursday and Saxo bank has increased margins ahead of the meeting. The peg is being pushed hard now as the shorts are running for the doors. Not being a bond wonk myself I would have thought the 3 month would be the perfect place to be to position for a change in the peg. Of course I've found over the years if I think something and the market thinks something else it's likely I'm the one who's wrong.

Tue, 06/12/2012 - 11:36 | 2518154 Ghordius
Ghordius's picture

hehehe, wait until the 10y is negative...

Tue, 06/12/2012 - 11:38 | 2518168 Captain Benny
Captain Benny's picture

Spain will be so jealous!

Tue, 06/12/2012 - 11:41 | 2518182 LULZBank
LULZBank's picture

Spain is no Switzerland either.

Tue, 06/12/2012 - 12:06 | 2518307 Ghordius
Ghordius's picture

the funny thing is that the Swiss are starting to talk about this floor as if it were a dam. now, of course, most people are scared of dams, but the Swiss (bless their little souls) are very fond of engineering and dams.

since the debate at the moment is mainly between setting the floor to 1.40 from 1.20 (i.e. cheapening the CHF vs the EUR) OR leaving it as it is, they will soon start to talk about printing more and buying something tangible with it (they are the prepper nation of the world). harnessing the power of this dam. we are not yet there, though

now, what could they buy with fresh notes that is tangible and a store of value? they already have bunkers, arms and ammo to last for three world wars... they already have foodpiles for several years...  hmmm... any ideas?

Tue, 06/12/2012 - 12:33 | 2518390 Bogdog
Bogdog's picture

FB calls!

Tue, 06/12/2012 - 13:33 | 2518610 malikai
malikai's picture

The whole nation will be piling in on those $0.03 ITM calls.

Tue, 06/12/2012 - 20:39 | 2520048 flyingcaveman
flyingcaveman's picture

Municipal bonds..... bitches.  

Wed, 06/13/2012 - 01:14 | 2520508 GMadScientist
GMadScientist's picture

Oooh..pick me pick me!

A whole buttload of bubbly American bonds; they will be consumed with liquidity preference.

Tue, 06/12/2012 - 11:54 | 2518246 disabledvet
disabledvet's picture

I must say once these rates rationalize what happens next will be a sight to behold.

Tue, 06/12/2012 - 11:54 | 2518251 davinci7_gis
davinci7_gis's picture

It's really strange to see people buy bonds on any measly uptick in the SPX....this is when you KNOW things are bad!

Tue, 06/12/2012 - 11:36 | 2518156 El Oregonian
El Oregonian's picture

Hey, it's opposite day! Yea!!!

Tue, 06/12/2012 - 11:36 | 2518158 Village Smithy
Village Smithy's picture

What could go wrong!

Tue, 06/12/2012 - 11:38 | 2518166 Alejandrito
Alejandrito's picture

Too much money, chasing too few [SAVE] assets.

 

http://agstock.blogspot.com.es/

Tue, 06/12/2012 - 11:38 | 2518169 TonyCoitus
TonyCoitus's picture

Fuckin A man, I'm gonna start my own country and sell negative bonds!  Feel free to send me your money in advance.  WTF

Tue, 06/12/2012 - 13:18 | 2518547 NotApplicable
NotApplicable's picture

Always entertaining to see that in writing.

Some expressions are better left in the spoken word.

Tue, 06/12/2012 - 11:40 | 2518172 LULZBank
LULZBank's picture

In this scenario ... is it better to hold CHF or Gold in the short term?

Tue, 06/12/2012 - 11:43 | 2518189 SilverTree
SilverTree's picture

Hold on to your nutts...and gold too.

Tue, 06/12/2012 - 11:45 | 2518199 LULZBank
LULZBank's picture

My nutts are price inelastic.

But, I meant if the CHFEUR peg was to break, Gold might get cheaper in CHF?

Tue, 06/12/2012 - 11:56 | 2518258 ThirdWorldDude
ThirdWorldDude's picture

The difference will be that when the peg breaks, gold will be CHF3000 instead of CHF4000 per ozt, but it's price in EUR will rise by the minute. 

Tue, 06/12/2012 - 11:45 | 2518198 Mr. Fix
Mr. Fix's picture

Physical gold and silver.

Tue, 06/12/2012 - 11:47 | 2518205 Peter Pan
Peter Pan's picture

If things change suddenly and violently you may find your local bullion dealer with his shutters down and your ability to convert to gold might be between nil and zero. The pursuit of profit must not make you blind to the possibility of large capital losses.

Tue, 06/12/2012 - 11:53 | 2518239 LULZBank
LULZBank's picture

Things will not change suddenly and violently, without a prior warning atleast. Its a step by step process. Anyway dont worry about it.

Am I correct in thinking that, if adn when the CHFEUR peg breaks, Gold will go down in CHF for a while?

Tue, 06/12/2012 - 11:48 | 2518216 suls
suls's picture

Why would you relate the two to Swiss gov bonds?

Tue, 06/12/2012 - 11:56 | 2518261 disabledvet
disabledvet's picture

Well one thing is certain: the Swiss guards aren't going to invade anyone. Where "The Restoration" comes from after all is anyone's guess right now tho.

Tue, 06/12/2012 - 11:42 | 2518187 Peter Pan
Peter Pan's picture

Things that don't make sense seem to dominate the financal and economic landscpe. Instead of recognising the signs and taking the exit with real assets, we are stuck like deer in headlights at the sight of a stock market that still shows movement thanks to the use of an electric money prod.

Tue, 06/12/2012 - 11:48 | 2518213 FranSix
FranSix's picture

Operation Twist was meant to prevent negative nominal rates, but in aggregate, you're going to get negative nominal rates somewhere.  This situation is the same as last year, where nominal rates turned negative on short dated treasuries, and gold saw a parabolic rise.  What's next is German bunds going negative again.  Or perhaps UK rates, being below 0.5% at the short end of the curve means that whatever their plan was, they ran into serious fiscal difficulties, and must allow negative nominal rates eventually.

Meanwhile, in Canada, selected treasury bill yields have fallen below the target rate.

http://www.bankofcanada.ca/rates/interest-rates/t-bill-yields/

Tue, 06/12/2012 - 12:02 | 2518285 disabledvet
disabledvet's picture

Massive DEFLATION. Sure...gold will work. But not for anything with more than ten employees. The last time the dollar shortages could be met. How will it work this time?

Tue, 06/12/2012 - 12:08 | 2518316 FranSix
FranSix's picture

If you have negative nominal rates, then there so happens to be one money-market commodity which you can rely on in a pinch for short term stores of value, without even having to take delivery.  And, if need be, you can take delivery and store the bullion bars in a bank, because its a monetary asset.

Tue, 06/12/2012 - 11:48 | 2518214 1835jackson
1835jackson's picture

Money For Nothin' And Chicks For Free

Tue, 06/12/2012 - 11:48 | 2518215 JackT
JackT's picture

I like the "HELP for Explanation" at the top

Tue, 06/12/2012 - 12:11 | 2518313 mikla
mikla's picture

Translation:  Switzerland is "being-paid" to issue debt, so Switzerland can "make-lots-of-money" by "borrowing-more-money".  (Weird, and counter-intuitive.)

Typically, a government "borrows-money" by issuing bonds.  To borrow, the government must agree to "pay-interest" for that privilege (e.g., it "costs-something-to-borrow").

However, the "negative-interest-rate" we see today shows that people holding Euros are scared:  They are willing to pay Switzerland for the privilege of loaning-their-money to Switzerland.  This is because they are "selling-Euros" to "buy-bonds-denominated-in-(Swiss Francs)-CHF", because they trust the Swiss Franc more than they trust the Euro, and they are willing to "lose-money" to do it.  (People are "divesting Euros", and Switzerland is making-a-profit as people are willing to lose-money to buy CHF.)

The result:  Switzerland is literally "making-money-by-borrowing-money".  Under this scenario, if Switzerland "borrowed-infinite-money", then it would be "infinitely-rich", and it could use those profits to pay off all debts, have great parties, and purchase empty-cities throughout Asia.

Tue, 06/12/2012 - 16:41 | 2519467 prole
prole's picture

#WINNING!!

We could have done the same thing, but instead "we" decided to send all the money to a precious little country somewhere else, so we could go bankrupt.

Tue, 06/12/2012 - 11:56 | 2518262 Cursive
Cursive's picture

I will gladly pay you 10 Euros today for 90 Swiss Francs tomorrow. 

Tue, 06/12/2012 - 12:18 | 2518344 Jack Sheet
Jack Sheet's picture

That's about 3 hamburgers

Wed, 06/13/2012 - 01:18 | 2520516 GMadScientist
GMadScientist's picture

Ze wango ze contango.

Tue, 06/12/2012 - 11:59 | 2518276 Nobody For President
Nobody For President's picture

The Euro IS a sitcom.

Tue, 06/12/2012 - 12:23 | 2518354 Ghordius
Ghordius's picture

enjoy it while it distracts you from the main front

Tue, 06/12/2012 - 12:04 | 2518300 Village Smithy
Village Smithy's picture

Bernanke is getting nervous. Everytime one of his stooges mentions stimulus PMs spike and more importantly oil does. He's floated this trial balloon enough already it's time to admit the truth; The banksters swarm all over the stimulus and turn it into commodity inflation. The working economy never sees a fuckin cent. Got it Dr.? 

Tue, 06/12/2012 - 12:08 | 2518314 slewie the pi-rat
slewie the pi-rat's picture

so risk0n isn't really risk0n?  Hahaha!

the swissies should raise the peg to 1.25?  L0L!!!

that fungicide can run like the wind!  what a thoroughbred!

Tue, 06/12/2012 - 12:17 | 2518339 Temporalist
Temporalist's picture

I think Henny Youngman said it best: Take my money please!

Tue, 06/12/2012 - 12:17 | 2518342 Jack Sheet
Jack Sheet's picture

anti-matter

Tue, 06/12/2012 - 12:26 | 2518364 Bogdog
Bogdog's picture

I'm consistantly nonplussed at that which I do not understand.

Tue, 06/12/2012 - 12:32 | 2518388 Shibumi2
Shibumi2's picture

I'll ask the same question again. Why would the Swiss government not issue massive negative interest bonds and corner the PM market. Wouldn't take all that much.

 

The Swiss are enjoying the same advantage that has always accrued to the oil/military backed USD.

Tue, 06/12/2012 - 12:42 | 2518424 aerojet
aerojet's picture

What's funny is that bizarro works out on paper and in charts, but not in the real world.  For example, if my bank started making me pay interest to keep my money there, I'd tell them to go fuck themselves and just deposit enough to pay my bills.  Is that where this is all going?  Because if it is, we're way closer to doomsday than anyone dares mention.  You can't run on negative interest rates anymore than you can run on a negative tank of gas. 

Tue, 06/12/2012 - 13:04 | 2518504 Yen Cross
Yen Cross's picture

Switzerland is the " Poster Child" , of " Fiat gone Wild"!  Classic example of Monopoly Money!

Tue, 06/12/2012 - 13:15 | 2518524 swabeyjw
swabeyjw's picture

 

This is so cool. Collectively, I do not trust the money I print (I just can't help printing. Then again I just might stop. I'm a bit crazy. I'm a Euro issuer wondering about the true meaning of GDP.). I trust the money (CHF) you print so much that I will give you interest in your money (CHF) if you sell me the money (CHF) you print and hold on to it for me (bonds).  Lets see now, you print money (CHF) and hold on to it. I give you money in my currency (EUR). In time the money (bonds) you printed decays to zero. Net/Net I just give you money (Euros). You pick what currency to convert Euros into or to just spend it on goods. Perhaps this will not last long. Then again, I get to be like USA and print until...................? Oh wow, I think I just found the roots for new European monetary system including management of fear (thank you Bush for our new world order) and thus exchange rates. It looks like print and counter print. We have liquidity and mop-up . Look out USA we have a second means to print to infinity with its own debt ceiling debate about to emerge. All we needed was a socialist country with 70+ percent of the population working in the banking industry to get a strong handle on the cronyism to instill a process for trickle down. This is to good to be true. What am I missing...........Oh yeah how do we get the confidence into debt that are not Franc bonds? Wait, if you buy Euro debt with bonds(CHF) that are issued with negative interest rates, you can accept the loss once the bonds have decayed to zero. Ok, who has a calculator to sort out how long we need to extend and pretend once the Bush era is over.

 

Tue, 06/12/2012 - 13:18 | 2518549 farmerjohn2112
farmerjohn2112's picture

As Lt. Cmdr. Data might say... 'Processing. Processing. Stand by, processing'

Tue, 06/12/2012 - 13:44 | 2518657 PontifexMaximus
PontifexMaximus's picture

In a few weeks Switzerland can buy with 50, 100 or 150 bill EUR half of Spain or provinces in the northern part of Italy. But, stop! Not yet rock bottom prices.

Tue, 06/12/2012 - 16:54 | 2519513 prole
prole's picture

Why would the Swiss want to have any debt regardless?

And what do they do with the Euros they get now? Why would they want a currency now, which may crash and burn anytime, and promise to give someone in the future a solid, good for the ages currency?

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