The ebbs and flows in investor risk appetite in recent months have resulted in a rollercoaster ride for the Swiss government bond market. The run-up in the price of Swiss 50-year government bonds between early-July and mid-August – which reflected a fall in the yield from +0.2% to minus 0.5% – was more akin to that seen in Bitcoin in late-2017 than that normally observed in the fixed income market, albeit on a somewhat smaller scale. (See Chart 1.) In a stark illustration of how investors got a bit ahead of themselves, the 14% fall in the price of 50-year Swiss debt since mid-August has also echoed Bitcoin’s fall from grace, and we would not be surprised to see the sell-off run a bit further. Nonetheless, with the SNB on track to follow the ECB’s lead in cutting interest rates in early 2020, the key point is that Swiss bond yields are likely to stay very low by historic standards. The yield on 10-year Swiss paper is now broadly in line with our end-year forecast of -0.75% and we expect it to remain below zero over our forecast period.
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