Switzerland Sells 10-year Bonds at Negative Yield

Switzerland has successfully auctioned 10-year government bonds at a negative yield, in what is reported to be the first time that a government has been able to make investors pay for the privilege of lending to it for such a lengthy period.

The Swiss Federal Treasury said it sold 232.501m Swiss francs (CHF) – equivalent to US$242m/€222.9m – of bonds maturing in July 2025 at a yield of -0.055%. The bonds carry a 1.5% percent interest rate. At the previous auction of the bonds, in February, they sold at a then record low yield of 0.011%.

A third of eurozone government debt now carries negative yields; a trend that has accelerated since the European Central Bank (ECB) last month launched its quantitative easing (QE) programme to buy €1 trillion of bonds.

While several other European have sold shorter dated government debt at sub-zero yields, this is the first time that a major nation’s 10-year debt has been sold at a negative yield. Investors have continued to buy debt on growing fears of a prolonged period of deflation.

The Swiss National Bank (SNB) surprised markets in January by scrapping its cap on the CHF’s value against the euro, leading to a surge in the Swiss currency that could also contribute to a move into deflation.