The Swiss National Bank may have pegged the EURCHF (and as noted earlier [7], 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.
[8]
Swiss government issues debt at negative interest rate as investors seek safety of franc [9]
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...
[10]
Charts: Bloomberg