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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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Tue, 05/29/2012 - 15:38 | 2473090 LawsofPhysics
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 >

Tue, 05/29/2012 - 15:49 | 2473119 NotApplicable
NotApplicable's picture

Bizarro World, FTMFW!

This will do wonders for my retirement fund.

Tue, 05/29/2012 - 16:03 | 2473203 nope-1004
nope-1004's picture

Can we logically ever have hyper deflation?  Anyone?


Tue, 05/29/2012 - 16:15 | 2473246 shuckster
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...

Tue, 05/29/2012 - 16:58 | 2473372 tarsubil
tarsubil's picture

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

Tue, 05/29/2012 - 17:08 | 2473403 Leopold B. Scotch
Leopold B. Scotch's picture

Never go full retard?

Too late.

Tue, 05/29/2012 - 17:11 | 2473416 Financial_Guard...
Financial_Guardian_Angel's picture

In Soviet Russia, debt repays you back!

Tue, 05/29/2012 - 20:38 | 2473869 Bob
Bob's picture

Funny how that Russian Rush went.  I think we really don't talk about it enough:

Wed, 05/30/2012 - 12:23 | 2476035 tarsubil
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.

Wed, 05/30/2012 - 00:34 | 2474210 icanhasbailout
icanhasbailout's picture

that's mathematically impossible


Wed, 05/30/2012 - 07:07 | 2474636 NewWorldOrange
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.

Tue, 05/29/2012 - 16:16 | 2473256 SheepRevolution
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.

Tue, 05/29/2012 - 16:34 | 2473316 Frastric
Frastric's picture

Welcome to Bernanke's terrestrial realm!

Wed, 05/30/2012 - 04:19 | 2474432 BorisTheBlade
BorisTheBlade's picture

Yes, we can!

Tue, 05/29/2012 - 16:09 | 2473226 jus_lite_reading
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

Tue, 05/29/2012 - 18:05 | 2473562 robertocarlos
robertocarlos's picture

FB 10 gold 1200

Tue, 05/29/2012 - 15:40 | 2473096 PontifexMaximus
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?

Tue, 05/29/2012 - 20:51 | 2473895 Bob
Bob's picture

SNB's game?

Tue, 05/29/2012 - 15:43 | 2473114 css1971
css1971's picture


Tue, 05/29/2012 - 15:44 | 2473118 jazze
jazze's picture

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

Tue, 05/29/2012 - 15:46 | 2473125 NotApplicable
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)?

Tue, 05/29/2012 - 15:49 | 2473138 jazze
jazze's picture

how is cash on deposit more risky?

Tue, 05/29/2012 - 15:50 | 2473143 NotApplicable
NotApplicable's picture

Bank holiday.

Tue, 05/29/2012 - 16:16 | 2473251 Ratscam
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.

Wed, 05/30/2012 - 02:48 | 2474375 Ghordius
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.

Wed, 05/30/2012 - 05:58 | 2474579 Ar-Pharazôn
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

Tue, 05/29/2012 - 15:59 | 2473183 LawsofPhysics
LawsofPhysics's picture

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

Tue, 05/29/2012 - 18:06 | 2473564 robertocarlos
robertocarlos's picture

Ocean's 15.

Tue, 05/29/2012 - 15:47 | 2473127 PontifexMaximus
PontifexMaximus's picture

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

Tue, 05/29/2012 - 16:13 | 2473243 Ratscam
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 ....

Tue, 05/29/2012 - 17:02 | 2473382 kris
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

Tue, 05/29/2012 - 21:43 | 2473963 blunderdog
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.

Tue, 05/29/2012 - 15:45 | 2473121 ziggy59
ziggy59's picture

I want in this on action!

Tue, 05/29/2012 - 15:47 | 2473131 NotApplicable
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!

Tue, 05/29/2012 - 15:51 | 2473148 Jean
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.

Tue, 05/29/2012 - 17:10 | 2473415 Leopold B. Scotch
Leopold B. Scotch's picture

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

Tue, 05/29/2012 - 15:48 | 2473135 Joe Sixpack
Joe Sixpack's picture

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

Tue, 05/29/2012 - 16:42 | 2473337 Grinder74
Grinder74's picture

Try words putting order in right.

Tue, 05/29/2012 - 15:52 | 2473153 Overfed
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.

Tue, 05/29/2012 - 16:02 | 2473200 PontifexMaximus
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?

Tue, 05/29/2012 - 15:52 | 2473159 Matt
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?

Tue, 05/29/2012 - 15:58 | 2473174 PontifexMaximus
PontifexMaximus's picture

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

Tue, 05/29/2012 - 15:59 | 2473180 westerman
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. 

Tue, 05/29/2012 - 16:11 | 2473234 khakuda
khakuda's picture

Great points.

Tue, 05/29/2012 - 17:13 | 2473426 Leopold B. Scotch
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".

Tue, 05/29/2012 - 16:24 | 2473272 ThirdWorldDude
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.

Tue, 05/29/2012 - 16:01 | 2473195 d2themfi
d2themfi's picture

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


Tue, 05/29/2012 - 16:13 | 2473239 slewie the pi-rat
slewie the pi-rat's picture

that's a total!

Tue, 05/29/2012 - 16:11 | 2473230 khakuda
khakuda's picture

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

Tue, 05/29/2012 - 16:22 | 2473264 slewie the pi-rat
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


Tue, 05/29/2012 - 16:16 | 2473253 mind_imminst
mind_imminst's picture

If the fiat you are buying Swiss debt with is devalued at a greater percentage than the negative yield of the bond, over the term of the bond (likely in today's world?), then you still end up better off than by just holding a rapidly devaluing fiat.

Tue, 05/29/2012 - 17:15 | 2473436 Financial_Guard...
Financial_Guardian_Angel's picture

Well said. That goes a long way to help peeps understand why negative yields on sovereign debt may be better that hoarding the cash. Also explains beautifully why its a good idea to hold physical AU and AG.


My stacks are getting bigger. The rest is white noise.

Tue, 05/29/2012 - 18:57 | 2473665 The Swedish Chef
The Swedish Chef's picture

I don´t get it, perhaps I´m stupid... 


Let´s say I buy 100 CHF worth of bonds. After two years I get the back the principal plus the coupon of -0,63 CHF. How can that protect me from inflation? I got the same crappy, inflated fiat money, just less of it.

Wed, 05/30/2012 - 15:06 | 2476854 mind_imminst
mind_imminst's picture

Let us use some simple round numbers and a country we know - Zimbabwe. Let us say 10 years ago you took $1000 Zimbabwe dollars - Zs - and converted them to $1000 francs (let us just assume that Zs were once a strong currency). With your $1000 francs you buy a ten year bound that had a negative yield, for ease of calculation, let us say over the duration you lost 10% of your capital, so after 10 years you had only $900 in principle left. Meanwhile, during that same ten years, Zs inflated so much that $1000 Zs are now only worth 1Z (in actuality it was worse than that). If you held the 1000 Zs in a bank account they would now only have the puchasing power of 1Z. Instead you invested in negative yielding Swiss bonds and you have $900 worth of francs. Now when you convert your francs back into Zs, you end up with 900,000 Zs.

Like mentioned previously, precious metals would probably be as good but most likely better in a world of rapidly inflating currencies. Some productive assets would be better as well.

Tue, 05/29/2012 - 16:34 | 2473313 Silversinner
Silversinner's picture

People of the upperclass putting their money en masse into

Swiss banks and gov bonds wasn't that the same thing what

happend right before the two world wars?!


Tue, 05/29/2012 - 17:04 | 2473347 Umh
Umh's picture

I'll offer up my mattress. The rate will pay for the guards.

Tue, 05/29/2012 - 17:26 | 2473470 Bastiat009
Bastiat009's picture

Negative rate and collapsing gold.

DISCLAIMER because you start throwing stuff. I am not saying that makes sense, I am not saying I enjoy this, I am just saying that people are willing to sell gold to buy debt with no or negative yields.

Tue, 05/29/2012 - 18:29 | 2473624 jimmyjames
jimmyjames's picture

I am not saying I enjoy this, I am just saying that people are willing to sell gold to buy debt with no or negative yields.


Show us where you see people selling gold to buy debt-

"People" have and have had no gold to sell or the extra money to buy gold now and yet for the past 10 or so years-the price has risen yoy and has been the best investment class for the past 20 years running-

How do you explain that-or for that matter the question i recently asked you on another thread today?

Tue, 05/29/2012 - 18:45 | 2473651 Overfed
Overfed's picture

And here I am trying to decide when will be the best time to max out my credit cards to buy PMs.

Tue, 05/29/2012 - 17:28 | 2473475 eddiebe
eddiebe's picture

The banksters are laughing all the way to the ( well ) bank.

Tue, 05/29/2012 - 17:46 | 2473517 Grinder74
Grinder74's picture

<wrong thread>

Tue, 05/29/2012 - 17:51 | 2473530 Lost Wages
Lost Wages's picture

Switzerland makes up for it by giving you a cup of Swiss Miss hot chocolate at redemption.

Tue, 05/29/2012 - 20:57 | 2473903 WmMcK
WmMcK's picture

Oh, I thought it was Swiss Kriss. (laxative)

Tue, 05/29/2012 - 17:51 | 2473531 Scalaris
Scalaris's picture

Diet lard.

Tue, 05/29/2012 - 18:50 | 2473658 Thunder_Downunder
Thunder_Downunder's picture

Wait.. wait..


So one of the most desirable currencies in the world, that now has a negative carry, and self buying bonds due to ridiculous EXTERNAL demand is also one with .... wait for it.. the most conservative and tightly regulated banking systems in the world. I thought regulation was bad?


Vote 1, de-regulation of the banking system....

Tue, 05/29/2012 - 19:00 | 2473677 holdingontomypants
holdingontomypants's picture

well if anybody needs armed guards to transport their gold let me know...I take payment in gold and silver

Tue, 05/29/2012 - 19:06 | 2473690 indio007
indio007's picture

This is an Onion article right?

Tue, 05/29/2012 - 20:58 | 2473905 constantine
constantine's picture

Ok, I consider myself a tad more financially aware than most but this I truly don't understand so any reponse to the following question is greatly appreciated...

Why would one pay somebody to own their debt when they could just buy the currency outright?  Thanks in advance.


Wed, 05/30/2012 - 00:38 | 2474217 Knobbius
Knobbius's picture

1.  Counterparty risk.  With cash, your counter-party is the bank that holds it.  You have no specific claim against future national wealth with cash, just an accounting entry with your bank.  With government debt, your counterparty is the national government that issued it and implicitly the citizens whose taxes balance that government's books and make their currency so desirable.


2.  Liquidity.  Some currencies M0 level are dwarfed by the availability of outstanding debt.  I don't know that that's true specifically in the case of Switzerland, but it's true in most of the Western world.  The US M0 is something like 2 Trillion dollars, but its outstanding publically traded debt is 5-6 times higher.  If you want to park a lot of value somewhere quick, it's often easier to buy debt than to go into the FX markets and buy dollars.


3.  Potential Gains.  Amazingly, it's likely that those bonds will gain in value in the next year or so.  I still marvel at the idea of bidding up US 10-years that are already generating negative real yields (1.75% nominal), but that's what's happening.  


Hope that helps....



Wed, 05/30/2012 - 05:12 | 2474474 css1971
css1971's picture

To me this only makes sense if you are

  1. in the euro
  2. sure the euro is going to devalue
  3. sure the Swiss will break the recent peg and allow the franc to float instead of following the euro down.
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