LONDON, Jan 15 (Reuters) - All Swiss government bill rates and bond yields out to nine- year maturities traded below zero on Thursday, after the Swiss National Bank stunned markets by scrapping its exchange rate cap on the franc and lowered interest rates to -0.75 percent.
This was unprecedented in modern times, and analysts said it was only a matter of time before the benchmark 10-year yield dropped below zero too.
Swiss rates and yields out to five years had already been trading below zero, but the SNB’s bombshell turned the yield on nine-year bonds negative for the first time as well.
“The indicative yield on the June 2024 bond did briefly go below zero today,” a spokeswoman for Tradeweb told Reuters.
That yield fell as low as -0.02 percent and the yield on the bond maturing in July 2025 - which Tradeweb will make their 10-year benchmark later on Thursday - fell as low as 0.059 percent.
The yield on the 50-year bond maturing in June 2064 fell as low as 0.548 percent.
Liquidity in Swiss government bond trading is often light because the country has relatively little outstanding debt. It was even lighter on Thursday, because of the massive volatility sparked by the SNB’s surprise move.
The central bank’s scrapping of the franc’s three-year old cap at 1.20 per euro and pushing interest rates even deeper into negative territory stunned observers. Nick Hayek, chief executive of Swiss watch firm Swatch, called it a “tsunami”.
The euro plunged as much as 30 percent against the franc, and the lurch lower in bond yields put Swiss yields even further below comparable German and Japanese sovereign borrowing costs. German and Japanese yields out to five-year maturities had already turned negative.
Steve Barrow, head of G10 strategy at Standard Bank in London, reckons Swiss yields will fall further, pushing the benchmark 10-year yield below zero too.
“It’s just a question of time. It won’t be too long before the market gets to see the deflationary impact of the strength of the franc after today’s move,” he said.
This would be a landmark event. Not even at the height of Japan’s battle against deflation after its stock and property bubbles burst in the late 1980s did the benchmark 10-year Japanese Government Bond yield fall below zero. (Reporting by Jamie McGeever; Editing by Susan Fenton)