Institutional investors in Switzerland are not happy with the government issuing the very first 10-year bond in Europe with a negative rate but they see the need to adjust to the environment in the Eurozone surrounding the country. The pension fund association ASIP pointed out in a statement: “Not only are risk-free bond investments denominated in Swiss Francs no longer yielding any return, they are even costing money.”
Last week, CHF230m (€187m) in 10-year Swiss government bonds were issued at a negative yield to maturity of -0.055%. ASIP noted this “mirrored the difficult situation Pensionskassen are currently in” as it is becoming even harder to fulfil the liabilities.
Rolf Ehrensberger, CIO at the Swiss pension fund for the energy sector, PKE, said he was ”not surprised after all that had been happening over the last months” to see Switzerland become the first country on the European continent to issue 10-year government bonds with a negative interest.
Eric Breval, chief executive at the Swiss Federal Social Security Fund (AHV), noted his first pillar buffer fund was “in a similarly very difficult situation as other institutional investors in Switzerland” given the ever lower interest rates. He explained the first negative 10-year Swiss bonds were caused by the various quantitative easing measures and the fact that “Switzerland is considered a safe haven, especially in the middle of Europe”. Breval pointed out they also reflected an “expected deflation” as bond investors were always looking at real returns.
Lukas Riesen, partner at Swiss consultancy PPCmetrics, confirmed consumer prices in Switzerland have dropped over the last twelve months by 0.9%. This meant if investors believe in deflation over the long-term, “the expected real yield of this government bond paradoxically is still positive”, he explained.
IPE