Short guide to CHF fixed income options

The benchmark for fixed income is going to be the risk free rate, aka SNB rates: Swiss National Bank (SNB) - Current interest rates and exchange rates ( currently ~1%). 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 2023.

Savings account

Fixed deposits

  • Term ~ 1-12 months (fixed, i.e. liquidity risk)
  • usually starts at 100k
  • Yield ~ 0.5%-1.3%
  • 100k covered by esisuisse
  • tied to a given bank

Medium-term notes / Kassenobligation

  • Medium-Term Note Comparison - moneyland.ch
  • 2y seems to be lowest duration, so those have low liquidity, could potentially be laddered
  • current best rates likely at Cembra
  • Term ~ 2-10 years (fixed, i.e. liquidity risk)
  • Yield 1.5%-2.75%
  • 100k covered by esisuisse
  • Tied to a given bank

Swiss Pfandbrief

  • Issued only by Pfandbriefbank and Pfandbriefzentrale
  • Repackaged mortgages, very high quality (not comparable to common mortgage backed securities)
  • Can be bought directly with a given duration
  • Often included in CH bond funds

Individual bonds / Obligationen (oder Anleihen)

  • Can have various ratings/duration
    • Best ratings mostly for Swiss Government Bonds
  • One option is to build a bond ladder

example for a corporate bond (the higher the yield, the higher the credit risk): you buy 50k of psp162 at current ask price of 99.21 via swissquote. it gets repaid on 1.9.23, so current duration is 6 months. that’s a current gross yield of 1.58%. we have to deduct transaction fee of 135.- (0.27%) plus stamp duty of 0.075% (plus same again if not held to maturity), i.e. net yield of 1.23%. tax efficiency is another aspect. it’s great in this particular case: no coupon means no tax (yield being generated by below par price).

Bond funds

  • Various duration, and ratings, exposed to interest rate risk
    • Global hedged (real YTM hard to assess due to hedging, should be similar to equivalent rating/duration swiss bond funds)
      • VAGX (0.10% TER, avg duration 6.9y)
      • AGGS (0.10% TER, avg duration 6.7y)
    • Swiss corporate
      • CHCORP (0.15% TER, 2.25% YTM, 4.3y avg duration)
      • CBESG (0.15% TER, 1.88% YTM, 4.8y duration)
    • Swiss (all)
      • CHESG (0.15% TER, 1.7% YTM, 7y duration)
    • Confederation bond ETFs
      • CSBGC3 (1-3Y, 1.19% YTM)
      • CSBGC7 (3-7Y, 1.24% YTM)
      • CSBGC0 (7-15Y, 1.40% YTM)
      • 0.15% TER, currently long duration do not have much higher YTM (but will have large interest rate risks)
  • Mutual funds

Money markets investment / Geldmarktanlagen

  • Short duration, typically low risk (but some issuers temporarily struggled during the Great Financial Crisis in 2008)
  • Except for the lack of esisuisse coverage, those are probably always better than savings accounts (less intermediaries), while being very liquid (a few days to cash out)
  • No ETF, only mutual funds
    • UBS, share class P is for private investors (0.07% TER, 0.93% YTM, 91 days avg duration)
    • CS, share class B is for private investors (0.075% TER, 1.21% YTM, 108 days avg duration)
    • ZKB (LU) (0.11% mgmt fee, 1.56% YTM)
    • ZKB (CH) (higher risk, 0.11% mgmt fee, 1.89% YTM)

Trading and fees

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.

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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.

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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.

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I looked into one of the Mutual Funds:

https://markets.ft.com/data/funds/tearsheet/summary?s=lu0033502740:chf

It lists the following costs:

  • Initial charge: 3.00%
  • Current management fee: 0.16% p.a.
  • Ongoing charges: 0.07% p.a.

Do we need to pay 3% just to buy the fund? How can we buy MFs? Can we buy them on IBKR or Degiro?

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The 3% is the maximum charge, it’s up to the broker. For typical execution-only online brokers, there should be no such charge. Check the broker trade conditions for details.

It’s available at Swissquote but doesn’t seem to be available at IBKR.

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.

https://www.ishares.com/us/resources/tools/ibonds

What would be the point of doing a bond ladder with an ETF? Isn’t the ETF already exposing you to a variety of maturity?

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i do manage my own (short to mid term) ‘ladder’, majority is individual bonds tho, and additionally chcorp etf.

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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 %.

Hi!

I’m investigating fixed deposit, as my rational is: short-term and safe. « Fair » interest rate.

Here is an example, I’m unsure if there are better deals:

https://www.migrosbank.ch/de/privatpersonen/anlegen-boerse/depot-weitere-produkte/festgeld.html

Are there any opinions or advise about these fixed deposit?

Thanks

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This is good, just note that the minimum investment of 100k CHF is the maximum protected by the depositor’s insurance. And these are standard conditions of Swiss banks.

Please add it to the top post (wiki)!

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Is it me or last month/week the migrosbank link you sent showed a 1% interest for 6 months?
I might have misread/dreamt it :slight_smile:

The rates were indeed slightly higher, I think. Unsure the exact number for 6 months.

Let’s take a screenshot of today for later reference!

btw, sq also started to publish their fixed deposit rates online - for their own as well as the fiduciary / partner banks ones.

I would expect them to be fully taxed, simply without withholding. Or are you sure that they are tax free?

And Swissquote takes a commission of up to 10% of the interest.

The minimum investment is CHF/EUR/USD 100k.

not sure it’s legally tax free, true :slight_smile: