The safest haven in the World

The first thought that comes to the mind of many investors would be the Gold. Others could think of Germany. Today we all are pretty sure that this safe haven is called Switzerland. Why? This is because, for the first time in the history of finance, a country has issued a ten year bond with a negative yield. In fact today the Swiss government has issued a bond for the amount of 232.5 million of Swiss Fringes with maturity in July of year 2025 at a negative yield of -0.055 %. Another bond with 35 years of maturity has been issued at a very low positive rate of 0.422 %. Why is this?

Investors are accepting to pay just to own the Swiss bonds. This is for three big reasons:

  1. They have liquidities in excess coming from the Central Banks
  2. They hope to make a capital gain in the price movement of the ten year bond because they think the prices will go up further.
  3. They obtain a positive real interest rate because Switzerland has officially entered in deflation today.

Actually a nominal negative interest rate is a positive real interest rate because of the negative interest rate of inflation. Today the federal institute of statistic has announced that the annually inflation rate in March was -0.9 %. One of the main reasons why Switzerland entered in deflation is the strong national currency.

After the removal by the Swiss central bank of the fix rate of 1.2 with the Euro, the EUR/CHF rate has dropped at around 1.04, this means an immediately revaluation of 13.5 % for the Swiss currency. This revaluation has had a big impact on the imported prices pushing them down by 4.3 % in March.

The explanation of the big fall on the EUR/CHF rate immediately after the decision of the Swiss Central Bank, is the strong appetite of the investors from all around the world for Swiss assets.

Switzerland has been considered one of the major safe havens for long time and the currency of the country has always benefited in similar situations but a negative rate on the ten year bond, is for sure a big surprise for many investors. This places the country on the podium regarding the safest investment around the world.

You may also like...

Leave a Reply

Your email address will not be published. Required fields are marked *