19.06.25 - SNB: no surprise

This morning, the Swiss National Bank (SNB) cut its key interest rate by 25bps, in line with market expectations.

Markets: Swiss equities declined by 1%, already trading lower ahead of the announcement - Swiss government bond yields ticked slightly higher - Swiss franc strengthened further

My view: There had been speculative positioning for a surprise 50bps cut, betting on a weaker Swiss franc, which ultimately did not materialize.
Given the backdrop of heightened uncertainty and rising geopolitical tensions, I expect the Swiss franc to remain firm and potentially appreciate further. This supports my decision to maintain full currency hedges against both the euro and the US dollar.

The era is back of losing money by holding Swiss bonds in the portfolio.
With the policy rate now at 0% and Swiss government bonds yielding negative returns out to four years, many domestic investors are holding fixed income assets with negative real performance. In this environment, remaining invested in Swiss bonds is effectively a zero-sum game. Even worse when factoring in transaction costs, custody fees, and income taxes on coupon payments.

While there is still a small chance of capital gains should rates decline further, the risk-return profile of Swiss bonds remains deeply unattractive. For now, staying on the sidelines in this asset class, holding cash instead, appears the more rational choice. Nevertheless, many Swiss institutions continue to keep their clients invested, a decision that seems more aligned with securing custody fees than serving investors' best interests.

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