The benchmark for fixed income is going to be the risk free rate, aka SNB rates: Current interest rates and exchange rates ( currently ~1.25%). Anything higher than that will mean some risk is incurred (e.g. interest rate risk, the value of the holding will go down if interest rates go up and vice versa, or default risk esp. for corporate bonds).
While risk free rate was negative, the clear winner were cash accounts at Swiss banks (since many of them did not apply negative interest rates), but since late 2022 the landscape has change.
A small overview of the various options, with numbers as of Feb 2024 (for funds it’s May 2023). Sorting is approximately in the order of increasing duration / flexibility / variability of returns.
This is a summary! Please discuss specific instruments in linked threads!!!
Bonds (including Pfandbriefe) and Bond ETFs can be traded like every other assets. Best is to use ISIN due to often non-descript names.
For Swissquote, trading fees for bonds all-in (including stamp duty) are around 0.5% at low five-digit amounts and 0.3% for 100k. For bond ETFs all-in its around 0.3% at low-five digit amounts and 0.1% for 100k. Spreads are not necessarily transparent, but at SIX all listed assets should have market makers ensuring reasonable pricing.
Further related threads about specific instruments:
Good work! But, you seem to have many questions on trading these bonds, and I am not sure why. Any decent broker will do, just use the ISIN and trade as you do every other asset.
For Pfandbriefe, only two issuers exist anyway: Pfandbriefbank and Pfandbriefzentrale. Note that these repackaged mortgages are the most secure bonds you can buy, quite contrary to other mortgage backed securities (like those that blew up in 2008 in the US).
Bond trading fees at Swissquote are around 0.3% as a rule of thumb, slightly higher at around 0.5% for low five-digit amounts. Most Bond ETFs are 9 CHF/trade, which everything considered is still around 0.3% for low five-digit amounts, but drops to 0.1% for 100k.
I just don’t have any personal experience with them so I refrained from adding things I wasn’t familiar with.
It’s a wiki, you can edit to add all the info (eg about brokerage costs). Also I think my main concern on individual bonds would be the spread, not the fees. I guess can check SIX to see what the typical spread is.
Didn’t realize this was a wiki I can edit, updated some info accordingly. Transparency on spreads (or the actual quotation for that matter) is a bit of an issue though, as there is not necessarily a lot of trading activity in individual bonds. But market makers should at least in theory keep trades civil.
Bond Ladders. Has anyone actually built a CHF bond ladder with ETF or low cost instruments? Say to meet school fees or as a drawdown mechanism for the next few years FIRE liquidity?
I see that iShares do iBonds some annual maturing ETF with 1-10 year horizons (ie no capital volatility if held to reimbursement) and Invesco do BulletShares on the same principle, but their focus is USD.
To meet regular liquidity requirements without the exposure to the interest rate risk in the priciing… these products refund the capital at term of 1, 2, 3 years and are then “over”. Your are locking in a YTM %.
Any change in options here [moved from Money market funds in CH], given the recent interest rate bumps?
(Other than WIR/Cler savings accounts plus, and Cembra kassenoblis)
Migros bank has some good interest rate both for fixed term deposit and saving accounts. So, still one of the best solution for keeping the money liquid.
But now, the question: what is the risk (above 100k)? If we look at the rating, the bank « only » rates A while other similar bank tends to rate slightly higher. Is Migros bank a bit risky and special care is needed?
Most banks in Switzerland are not at any real risk, as long as the real estate market doesn’t collapse - and what none of us should forget, the 100k is what ist protected, if sufficient funds are in the insurance (ESI Suisse), as far as i know… so, if a larger bank would come to fail, this 100k would not get very far for a lot of clients :-)… The system is different than the one in other countries, at alest as far as i know
Important thing regarding liquidity: bear in mind that saving accounts have pretty restrictive rule regarding at what rate you can get your money out of it…
I don’t think there’s a high probability of a client loosing money in a bank failure in Switzerland. That being said, if I were willing to take on risk that can be mitigated, I would not keep my money in cash. Cash is for money I need available and can’t afford to loose, I wouldn’t give up on the esisuisse insurance for a few tenth of a percentage point of interest.
Savings accounts also usually have withdrawal limits, which is another reason to prefer using several accounts for bigger sums.
It is an ETP on the SARON rate with 0.3% fee, so a ~1.4% rate currently. Could be an interesting alternative to short-term fixed deposits or savings accounts (with more flexibility, as there are no minimum holding durations). Trading on SIX starts on 15/09/2023.
I am not sure about the risk yet. The term sheet mentions that they do a collateral pledge according to a security agreement that you can order via phone, fax, or e-mail (why not just publish it online?).
Oh nice, that could be very interesting with a 0.1% fee. I have not requested any details because 0.3% was too high to for me, but just wrote them an e-mail regarding the TCM agreement.
The ETP is tradeable on IBKR and spreads are reasonable. They seem to be always 0.02 (so ~4.5 days of yield) based on the SIX historical data, I guess you are almost always trading with Leonteq which is the market-maker.
It is a pity that you have to pay the stamp tax when buying / selling. With the current rates, this is a month of yield for a buy or a sale. So the product is not really suitable for short-term deposits.
Oh yes you are right, was reading the term sheet where they mentioned that stamp tax always applies, but the normal rules should apply for investments via foreign brokers.
If I understand the Triparty Collateral Management correctly, nothing should happen because the ETP is fully collaterized. But this of course depends on the quality / volatility of the collateral.
Received the TCM agreement today. I have not studied it in detail (45 pages of legal clauses), but in general, SIX ensures that there is always enough collateral and you are eligible to the proceeds of the collateral sale if Leonteq defaults. The most important points in my opinion are:
There is no overcollaterization requirement.
Leonteq has five business days to fix any undercollaterization.
When the collateral is liquidated, the agent is paid first and the holder of the product only afterwards.
Investment-grade bonds, equities of a standard index, and ETFs are accepted as collateral.
So overall it is more or less a margin loan to Leonteq (without overcollaterization). As long as there are no huge market swings, this should work pretty well, even if Leonteq defaults. But I am wondering how it would work in a black swan event where Leonteq defaults and a lot of assets drop in value.
Moreover, almost all of the liquidity comes from Leonteq. If they suddenly decide to no longer be a market maker for the product, you would probably have a problem, because who would then buy this? You cannot just redeem the collateral in such a scenario.
So for me personally, it is too risky for the cash part of my portfolio (which should have a risk as close as possible to 0 for me), but YMMV.
I read the wealth of information you posted to take exposure to CHF. I want to invest with a multi year horizon 100k CHF in a fixed income product with short duration. I noted you started your journey a year ago. Can you recommend some ISIN I can use via Interactive Brokers (probably LU-ISIN) that come as your best pick in terms of return/fee ratio ? Thanks in advance
Here is an important piece of information, which was never discussed AFAIK.
EDIT: applies to Canton Vaud only.
According to the taxation practice in Switzerland, the “interest earned on capital” is added to the taxable income and then deducted from the taxable income up to certain, rather high, limits.
See for example
That means that this type of interest is essentially tax-free. This taxation practice concerns interest on bank accounts, short-term deposits, obligations/bonds (!!!) exchange-traded or not, mid-term notes of banks and similar instruments.
The income from stocks and investment funds is not subjected to this treatment.
For me it means that the interest from money market funds does not receive this preferential tax
treatment.
Another point is that an interest earned on individual bonds is subjected to this preferential tax treatment, while an interest distributed by a bond fund is not!
You can imaging yourself implications on “fixed income options” for private investors in Switzerland…
Durch das Lesen und die Teilnahme an diesem Forum bestätigst du, dass du den auf http://www.mustachianpost.com/de/ dargestellten Haftungsausschluss gelesen hast und damit einverstanden bist.
