Switzerland has announced an issue of long bonds which mature in June 2029, at the lowest coupon on record. In fact the coupon will be zero per cent, yes 0.00%. Investors will be placing their money with the Swiss National bank for 13 years for no return.
Swiss bonds with maturities out to 22 years are already trading in the secondary market at negative yields but this is the first time the country has issued bonds with a zero coupon. The fall in yields has been driven by an unprecedented combination of investor demand, negative cash rates and the ECB buying billions of euro worth of European bonds every month. While Switzerland is not actually part of the European Union, investors fleeing the euro have poured money into the Swiss franc and subsequently into Swiss bonds.
With interest rates negative, banks are charged up to 75bps per year to park their money at the central bank. This leaves investors who own zero coupon bonds better off than if they had parked their money at the Swiss National Bank. It’s a strange world.