Short guide to CHF fixed income options

The benchmark for fixed income is going to be the risk free rate, aka SNB rates: Current interest rates and exchange rates ( currently ~1.75%). 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!!!

Savings account / Sparkonto

  • Savings Account Comparison Switzerland - moneyland.ch
  • Yield up to ~ 1.8% for standard accounts
  • Yield up to ~ 1.8% for special offers
  • The rate can be adjusted by the bank at any moment, typically by the beginning of the next month.
  • Liquidity constraints, usually 1-12 months notice above some amount
  • 100k covered by esisuisse
  • Tied to a given bank

Money market funds / Geldmarktfonds

  • Short duration, typically low risk (but some issuers temporarily struggled during the Great Financial Crisis in 2008)
  • Market yield roughly following SNB rates
  • Very liquid, takes a few days to cash out
  • No ETFs exist, only mutual funds are available
    • UBS, share class P is for private investors (0.28% TER, 1.31% YTM)
    • CS, share class B is for private investors (0.075% mgmt fee, 1.18% YTM, 73 days avg duration)
    • ZKB (LU) (0.11% TER, 1.71% YTM)
    • ZKB (CH) (higher risk, 0.10% TER, 1.72% YTM)
    • Pictet LU (short term, 15 days average maturity, 0.12% mgmt fee, net yield 1.13% as of 2023-04-28)

Short-term fixed deposits / Festgeld

  • Banks with rates online: MB / SQ
  • Term 1-12 months (fixed, i.e. liquidity risk)
  • usually starts at 100k
  • Yield up to ~ 1.2%-1.8% (depending on duration), fixed at the start
  • 100k covered by esisuisse
  • Tied to a given bank

Medium-term notes / Kassenobligationen

Individual bonds / Obligationen (oder Anleihen)

  • Can have various ratings/duration
  • Yield is fixed at start if held to maturity or variable if sold before maturity
    • Best ratings mostly for Swiss Government Bonds
  • One option is to build a bond ladder

Swiss Pfandbriefe

  • 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
  • Traded on stocks exchange

Bond funds

  • ETFs: 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, 2.26% YTM, 4.26y avg duration)
      • CBESG (0.15% TER, 2.28% YTM, 4.36y duration)
    • Swiss (all)
      • CHESG (0.15% TER, 1.77% YTM, 7.01y duration)
    • Confederation bond ETFs
      • CSBGC3 (1-3Y, 1.12% YTM)
      • CSBGC7 (3-7Y, 0.98% YTM)
      • CSBGC0 (7-15Y, 1.08% YTM)
      • 0.15% TER, currently long duration do not have much higher YTM (but will have large interest rate risks [cuts both ways tho])
  • Mutual index funds

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.

Further related threads about specific instruments:

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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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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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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 %.

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Don’t think you should expect anything, all the yields are moving which makes it hard to predict (and might not be held to maturity). If you have a specific horizon and want to lock-in some rate, check fixed term deposit, bonds or notes.

Any change in options here [moved from Money market funds in CH], given the recent interest rate bumps? :slight_smile:
(Other than WIR/Cler savings accounts plus, and Cembra kassenoblis)

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I have removed vermoegenszentrum’s savings account comparison. It is less functional than the one from moneyland and clearly biased :laughing:

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Hi!

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?

Rating as found here: Swiss Bank Ratings from S&P, Moody's and Fitch - moneyland.ch

Thanks!

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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 :slight_smile:

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… :wink:

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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.

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Just stumbled upon this new offering from Leonteq: https://structuredproducts-ch.leonteq.com/news/all/overnight-return-index

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?).

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2 posts were merged into an existing topic: Swiss government bonds, bond funds

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.

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Are you sure? Shouldn’t be the case with a foreign broker like IB.

But unfortunately there’s a big question of security: what is going to happen if Leonteq is bankrupt?

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.

Did you find anything yet? I’m looking for a low-risk, short-duration, low-friction instrument to stash CHF temporarily within an IBKR account.