Swiss Debt Is Now Repaying Itself

Tyler Durden's picture

The Swiss National Bank may have pegged the EURCHF (and as noted earlier, is progressively accumulating losses defending the barrier - even as EURCHF options are leaning further and further towards the peg breaking), but what about its bonds? At the current rate, Swiss debt, which is quite negative, with 2 year bonds now trading at record NEGATIVE rates, will repay itself quietly in a few short decades: ahhh the benefits of compounding. And for an example of how this is done, hours ago, the government issued debt at a rate of 0.62%. Oh sorry, we forgot the negative sign.


Swiss government issues debt at negative interest rate as investors seek safety of franc


By Associated Press, Updated: Tuesday, May 29, 9:50 AM


GENEVA, Switzerland — Global investors are paying Switzerland to take their money as they look for safe places to park their capital.


The Swiss government issued short-term debt bills worth 688.8 million francs ($716 million) Tuesday at a negative interest rate of 0.62 percent. That means investors are paying to lend money to Switzerland for three months.


Switzerland first offered negative interest on government debt last year when the franc surged on market fears about the euro.


Unicredit economist Alexander Koch says it underscores how investors are willing to incur some losses to preserve capital.


Tuesday’s debt sale comes after the Swiss National Bank said Switzerland was preparing for a possible collapse of the euro. SNB president Thomas Jordan told Zurich Newspaper SonntagsZeitung on Sunday that Switzerland was considering introducing cross-border capital controls.


and on a side note for all those wondering just how long the Swiss will continue to soak up the FX losses (we assume now balanced against the real gains from hugely negative rates of interest on their debt issuance), the following chart shows the bias to a considerably stronger Swiss franc that is priced into EURCHF FX options as bets are placed for the SNB's ability to hold th peg in the face of further implosions in Europe...



Charts: Bloomberg

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LawsofPhysics's picture

Debt paying itself off,  awesome, sounds like the best plan I have heard so far.  Nevermind that the vast majority of the world's debt is fraudulent, debt-free money anyone?  <  crickets >

NotApplicable's picture

Bizarro World, FTMFW!

This will do wonders for my retirement fund.

nope-1004's picture

Can we logically ever have hyper deflation?  Anyone?


shuckster's picture

I think we will see binary inflation - inflation in some sectors (food, energy, essentials), deflation in consumer products (non-essentials) and deflation in housing add infininum. The dollar won't crash like some people suggest - there's just too much anticipation. Don't get me wrong - I think there will be massive inflation, albiet brief, in some areas, but it won't be sustainable...

tarsubil's picture

Isn't what you describe what we have right now?

Leopold B. Scotch's picture

Never go full retard?

Too late.

Financial_Guardian_Angel's picture

In Soviet Russia, debt repays you back!

tarsubil's picture

FTA: " We still operate under the same neoliberal/libertarian major premises we inherited from the Hayek-Mises-Friedman era, an ideology that considers notions like "the public good" to be quaint delusions at best—as opposed to today's still-dominant, still-standing foundational ideology, which says that freedom equals the ruthless pursuit of individual self-interest, the unlimited acquisition of private property and wealth, framed within a cold, dystopian "rule of law." "

Like it is that hard to understand. Mark Ames is a fucking retard and so are you.

icanhasbailout's picture

that's mathematically impossible


NewWorldOrange's picture

"At the current rate, Swiss debt, which is quite negative,"

EPIC FAILURE. Swiss debt (whether you consider Public Debt or External Debt) is NOT negative. Swiss external debt is near the highest in the world. It's public debt sits at about 50% of GDP which is low for Europe but hardly "negative." Love the site Tyler. That's why I posted this.

SheepRevolution's picture

Debt-free debt?


Oh shit, this is just like when you try to figure out how time and space was originally created. You just keep ending up with the worst kind of headache.

Frastric's picture

Welcome to Bernanke's terrestrial realm!

jus_lite_reading's picture

Interesting times, people. This is a clear signal that the S is certainly about to hit the fan in a very public way. No way to hide it anymore. And if June brings anything to the table...

When it happens... FarceBook will be $20 and gold $1900

PontifexMaximus's picture

Just for some time, Geldmarktbuchforderungen, st bills are neg. Normal in CH. Do not be astonished, seing Mr. T. Jordan announcing new levels, 1.10 and then parity. SNB can't stand the heat. Probably surpassing India this months by amount of CB reserves. Funny, isn't it?

jazze's picture

Can someone explain why they don't just hold CHF cash instead of neg. yield paper?!

NotApplicable's picture

Counter-party risk.

If you have millions to manage, would you keep it in a bank these days? Or would you rather chose an entity with its own military (and printing press)?

jazze's picture

how is cash on deposit more risky?

Ratscam's picture

nope, the central banksters believe that a country with no resources will suffer from a strong currency - give me a brake and historical proof.

Ghordius's picture

the historical proof is Switzerland, today.

The manufacturers, the tourist industry etc. all lobby for this floor and print many, many pricelists in EUR.

Another historical proof is how in the past the US Farmers lobbied for a silver standard (softer) instead of a gold standard (harder). The rallying cry was "don't nail us on a cross of gold".

Of course "suffering" and "lobbying and crying to be suffering" might be two separate facts.

Ar-Pharazôn's picture

have you ever been to switzerland?

you know... just mountains no resources and a solid economy... perhaps we're aliens... dont know

LawsofPhysics's picture

currency devaluation, bank holiday, bank rehypothication, bank run, etc.

PontifexMaximus's picture

Who? Investors? Better keeping st bills of CH than leaving it in banksters acc. Don't you think so?

Ratscam's picture

open an account with credit suisse they offer you 1.75% interest on your money, no joke.big advertising campaign.
but, but they are not in need of new assets trust me ....

kris's picture

it is counterparty risk avoidance scheme on the one hand, but more importantly- you get negative interest on those papers which you can more then offset by lending them out. There is a big demand for quality collateral in Europe these days and those AAA papers are in wicked demand so owing them is very beneficial

blunderdog's picture

From the simpleminded view, it's hard to understand exactly why paper with different printing on it from the same government can be valued so differently, but this is in fact exactly the point.

EDIT: I guess for the benefit of all the other amateurs and dillettantes out there reading...

AAA ratings on bonds have value solely because of legislation and treaty that goes *beyond* the similar value placed on paper currency.  For institutions, there is money "better than" currency.

ziggy59's picture

I want in this on action!

NotApplicable's picture

As I just stated above. Get yourself a printing press and a well-trained military force, and you're in like Flynn!

Jean's picture

Actually what you need is country with no other significant economic activity, so you can float your currency at will.  A small island, a couple of surplus Ohio class boats w/ D2s, and your set.

Leopold B. Scotch's picture

That, and a population armed with high end sniper rifles and automatic weapons.

Joe Sixpack's picture

The Greek, Italien, Spanis, Portuguese, and Irish tax collectors can get a hold of it if you store in country.

Grinder74's picture

Try words putting order in right.

Overfed's picture

OK, I'm an admitted newbie. But am I missing something? Investors are paying Switzerland for the privilege of parking their fiat paper (or virtual fiat?) in their banks? WTF?

On a side note, if anybody here wants to pay me to store their gold/silver/cash/guns for them, I have a nice safe.

PontifexMaximus's picture

Rit u r, inv are paying to keep CHF out of banking system, as collegue notapplicable was mentioning: counterparty risk. Do you want to have UBS or CS for big amounts in ur books?

Matt's picture

Couldn't the Swiss just sell more debt at negative interest to devalue their currency, thus killing two birds with one stone?

PontifexMaximus's picture

Theoreticaly they could, but.....they do not need the funds. Don't laugh, it's the truth....for the time being.

westerman's picture

This is causing huge structural problems. The pensionfund system is based on that it is possible to buy safe bonds that make several percent more than inflation.These funds have been underpreforming for years. They are already stretched. Throw in a few more years with negative ROI and these funds will need to seriously reduce pension payments.

During this crisis people have only looked at the short term. They have built in major structural flaws in doing so. 

Leopold B. Scotch's picture

Solving that is in Chapter 234 of the book "Central Banker's Guide to Solving Stupid Shit Problems Created by Your Central Bank Meddling in the First Fucking Place".

ThirdWorldDude's picture

I agree, but think about the Norwegian Wealth Fund... they got their fingers burnt in Greece.

In times (and banks) like these it's more important to get Return OF Investment than Return ON Investment.

d2themfi's picture

"Unicredit economist Alexander Koch says it underscores how investors are willing to incur some losses to preserve capital."


khakuda's picture

Damn, I'd issue issue trillions of debt, collect the .62% and buy chocolate all day long.

slewie the pi-rat's picture

i just hada 6 oz cup of dutch chocolate ice cream

fitiCent @ discountGrocery but they don't always have them