UPDATE 1-Swiss plan 7 bln Sfr 2011 issuance, to reduce debt

* 7 bln Sfr issuance to be topped by repayments

* Federal government ran surpluses throughout crisis

* Debt levels steadily declining

(adds details, analyst comment, background)

By Sven Egenter

ZURICH, Dec 9 (Reuters) - Switzerland’s federal government will further reduce debt levels next year, issuing only 7 billion Swiss francs ($7.12 billion) worth of bonds compared to planned repayments of 7.6 billion francs.

The planned issuance will thus reduce the country’s debt outstanding by 0.6 billion francs, Switzerland’s Federal Finance Administration said on Thursday in a statement about issuance plans for next year.

The health of Swiss public finances runs in stark contrast to spiralling debt in many of its euro zone peers, mired in a debt crisis that now threatens to engulf Portugal and Spain.

The government has pencilled in a deficit of just 2.6 billion francs in its first budget draft for 2011, which includes 2 billion francs in extraordinary expenditure for railway pensions and an infrastructure fund.

A spokesman for the finance administration said that such a deficit could be financed through short-term money market instruments, which allowed the reduction of bonds in 2011.

Economists said the government’s budget and debt plans were rather pessimistic anyway. “The debt issuance plans are rather cautious,” said UBS analyst Reto Huenerwadel. “The fiscal situation is likely to be better.”

The government sees the economy growing by 1.6 percent this year after growth of 2.7 percent in 2010, whereas Huenerwadel sees growth of 2.3 percent next year.

The strong recovery of the Alpine economy has washed more money in the government’s coffers than anticipated.

The federal government expects to post a surplus of some 1.4 billion Swiss francs this year, compared to a 2 billion franc deficit planned in the original 2010 budget.

The federal government posted surpluses even in the crisis years 2008 and 2009 as it engaged in only small economic stimulus programmes.

It expects Switzerland’s overall public debt to fall to around 37 percent of gross domestic product according to international standards next year, less then half of the rate predicted by the OECD for the euro zone.


UBS analyst Huenerwadel said the government’s issuance plans would keep supply in the Swiss market tight, at a time when Swiss government bonds are in high demand as safe-haven assets.

Investors’ search for a safe place to put their money has allowed the Swiss government to borrow short-term money at virtually no cost. Swiss three-month yields have been zero for most of this and last year.

The treasury plans to issue bonds each month next year with the exception of August, with the issuances in April, November and December being optional.

The two latest 2010 issues with a total volume of 1.35 billion francs are already part of the 2011 issuance.

The gross issuance including the placement of retained bonds was 4.1 billion francs in 2010, reducing the debt outstanding by 4.6 billion francs.