Swiss bond yields turn negative on market panic

Swiss bonds were returning a negative yield during trading yesterday, with Bern selling six-month paper at -0.148%, in a clear sign of how high investors’ risk aversion is at present.

This means investors would receive less money than they paid for the bonds when they mature.

It is the first time for months the yields have turned negative. The two-year note last traded at -0.1% back in August, as investors fled to safe havens during the eurozone crisis.

Yesterday, Swiss bonds with maturities from three months to three years were showing negative yields, including -0.08% on three-year bonds.

The negative yield on 6-month Swiss bonds sold at auction compares with the current yield of 0.415% on six-month UK Gilts, while Treasuries with the same maturity pay out 0.05%.

However, Treasuries also fell into negative territory in August as markets panicked over the outlook for Europe.

Swiss, US, UK and German bonds have all been seen as safe havens amid the market turmoil in Europe, while the yields on the debt issued by other countries across Europe has soared.

Kevin Gardiner of Barclays Wealth said the debt-weighted 10-year yield is at its lowest level for AAA eurozone countries since the euro’s inception

By contrast, yields for those rated A or lower is by far at their highest

French six-month bonds are yielded 0.766% yesterday, while the country’s benchmark 10-year bonds have spiked to 3.569%

Sandra Holdsworth, fixed income manager at Kames Capital running a number of sovereign bond portfolios, said the move was “very unusual”, and showed investors were worried European sovereigns and banks may not be around to honour their debts in future.

“It is a reflection of the huge uncertainty that exists not only in Europe, but also about the security of the banks in these countries,” she said.

Holdsworth said the situation could continue for quite some time, while she also expected UK and US yields to stay near zero.


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