Swiss government bond funds

I was recently looking into ways to invest in Swiss government bonds (should interests rise to a point where they become interesting) and started to look for any ETF or index funds.

I was surprised to see that only iShares seems to have such ETF, for example CH0102530786 for those with a time to maturity of 1-3 years.

Am I missing something or is demand so low that nobody else cares to launch such a fund?

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Yeah, why pay a management fee for a negative yielding asset (in an expensive currency) that holds 2 bonds?

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I dont know.

If you are open for some hedged international bond etfs, check this out:

There is also an intersting bond calculator, where you can play around with different interest rate scenarios and time periods.

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UBS had virtually identical bond ETFs as iShares (same index, same TER), however, they were liquidated in 2019. UBS now offers a SBI ESG AAA-BBB ETF (CH0118923892), which includes government bonds but also corporate bonds.

Credit Suisse offers a CSIF Bond Switzerland AAA-AA mutual index fund. Also covers more than just government bonds, however, given the rating range, it should be safe enough for the stable portion of your portfolio (when the prime rate is positive again). This index fund is also available at Viac for pillar 3a.

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Bond ETFs provide duration management and you can benefit from roll-down return. If @Neville wants to hold gov bonds to maturity, sure, buying them directly is an option, however, manual duration management may not be feasible for private investors. If I remember correctly, a single bond typically has a high price (possibly CHF 10k), though, and broker fees may be higher than for ETFs.

I was checking Swiss bonds like one year ago. Yes, there are iShares ETFs if you want. But in total I found 24 bonds (now 23) from the Confederation and 149 from cantons and cities. The latter are often very illiquid.

Industry sector: Countries
Country: Switzerland

5k is typical, but could be also as high as 100k.

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Meanwhile, 10 years Swiss confederation bonds have a positive yield to maturity again.

How do you buy Swiss government bonds directly? I can’t find them in IBKR’s bond search tool, and moneyland warns about high trading/custody fees by Swiss brokers.
I’m not necessarily interested to buy at this point, just curious. Anybody has first hand experience?

Commission at Swissquote (+ 0.075% stamp duty + about CHF 4 exchange fee):

You can apparently trade Swiss gov bonds (EIDG) in increments of CHF 1’000 (nominal value). I don’t have any first hand experience, though.

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They are listed at SIX like any other security. So if you have a “direct” access to SIX, like with any Swiss broker, you can buy them. I was buying some swiss bonds (not governmental) in E-trading.

I can’t do it now because IB is not working but you can try to search by ticker, like E161.

With Degiro.ch you are not trading at the exchange directly, but with a market maker, so not everything is available.

That one must be for (mostly American?) OTC-traded bonds.

And, if you want to buy bonds and hold until maturity, think about Kassenobligationen.

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Found swiss bonds at Flatex (Tradegate Bonds). However considering that flatex operates only in EUR (or at least I think so), the question about costs remains open.

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It also heavily depends on which bonds. Short term? Less fluctuation but negative or close to zero (might not beat cash).

Longer term duration, might have positive yields but much bigger exposure to interest rate risk. This might be ok for long investment horizon where having somewhat uncorrelated asset class is what you’re after rather than low volatility.

For example check:
https://www.ishares.com/ch/individual/en/products/261156/ishares-swiss-domestic-government-bond-13-ch-fund

https://www.ishares.com/ch/individual/en/products/261157/ishares-swiss-domestic-government-bond-37-ch-fund

https://www.ishares.com/ch/individual/en/products/261158/ishares-swiss-domestic-government-bond-7-ch-fund

They have increasing duration and increasing volatility.

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Nice that you mention these specific Swiss bond ETFs from iShares as I was just looking into them due to the fact that the might be interesting again because of interests rates going back up. What I wanted to share and what I found very special with these 3 ETFs is that the short term and less risky one (0-3y) has a coupon of 2.82%, the intermediate (3-7y) a coupon of 2.09% and the more risky long term one a coupon 1.61%. Based on what I have read I would have expected the exact opposite (the less risk and short term should have a very small coupon and the more risky long term should have a higher coupon). Does anyone know why this is the case with these Swiss bond ETFs from iShares? If I compare with government US treasuries ETFs from Vanguard (VGSH, VGIT, VGLT) it is exactly the opposite.

Is it maybe because the special economic situation we have or is this something specific to Swiss bonds? Because if it is always like that that the coupon is higher for Swiss government short term bonds then the choice is easy, I would go for the 0-3y short term bonds ETF which has a higher coupon and less risk… But yeah maybe I am missing something here…

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You shouldn’t look at the coupon. Longer term bonds (before 2015) had a bigger coupon and shorter term ones (very recent ones) might have a bigger one too.

I’d look at the yield to maturity (YTM), which is:

  • 0.04% for a weighted average maturity of 1.1y for the short term bond fund (with 2 holdings… not sure it’s worth using a fund for that).

  • 0.1% for a weighted average maturity of 5.04y for the intermediate term bond fund (5 holdings…).

  • 0.53% for a weighted average maturity of 11.5y for the long term bond fund (8 holdings…)

Coupons are set when the bond is emitted but the price is corrected by market participants to reflect their expectations, which should lead bonds with similar credit risk and duration to have similar yields, independently of the coupon they pay.

That gives a normal curve (the longer term bond funds have higher yields), which would mean the market doesn’t expect yields to be lower in 5 or 10y than they are now.

Given the very few holdings these funds have, I’d rather use individual bonds, adding cantonal and cantonal banks, rather than these funds, which leads to the #1 and #2 thoughts process in the OP (don’t buy bonds with a lower yield than what you can get on a similar duration term deposit/CD).

For bond funds, a case could be made for diversifying credit risk and using a broadly diversified investment grade fund hedged in CHF, of which AGGS seemed like the best last time I checked: https://www.ishares.com/ch/individual/en/products/295830/ishares-core-global-aggregate-bond-ucits-etf-fund

What’s important with bond funds is to match their duration with your time horizon. They are somewhat self compensating interest rate risk on their duration (their holdings are loosing value when interest rates increase, but the bonds they purchase later on have a bigger yield and will compensate for that on the duration of the fund - but not earlier).

I’d personally rather go with a ladder of individual bonds/CD/term deposits, so I would be subject to the considerations #1 and #2.

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I think you could be confusing coupons and yields. Coupons are the nominal interests received each year from the bond. Yields are the computed return that also takes into account the current price of the bond, which depends on current interest rates.

The yield is normally higher for longer durations and lower for smaller durations in normal market conditions. Otherwise this is an inverted yield curve.

But coupons don’t have to. I think the explanation is that the Swiss government issues bonds with interest rates close to the current yields so as to have an initial price close to 100%. Since yields were recently low, it also means that recently emitted bonds have lower coupons. And the most recently emitted bonds are also the ones with maturity farther in the future than older bonds.

That’s why long term bonds have lower coupons.

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And there’s not a lot of choice in duration (unlike US for instance), so you have a high coupon and low yield, pretty bad tax wise.

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Thanks Wolverwine (and others of course) for the great explanation. I of course got both terms coupon and yield mixed up…

To conclude o these specific Swiss bonds ETFs from iShares they finally do not look interesting anymore and on top of that there is hardly anything inside these ETFs (2 bonds for the short term duration ETF). So a no go.

I got this one in my watching list too as it already got mentioned a few times and this forum and probably the best diversified and cheapest one can get based in Ireland and with CHF hedging. Another alternative ETF I’ve been looking at is Vanguard Global Aggregate (VAGE, VAGF, VAGS, VAGP) for the same TER of 0.10% as AGGS but Vanguard’s ETF is not available on the Swiss stock exchange and is not available as hedged CHF. Maybe one day they will also have such a version available.

I also was taking a look at these iShare ETFs and actually found them useful, especially long term one. It has a higher volatility then the shorter term ones, but higher volatility is better if an asset is anticorrelated with other assets in the portfolio. I need to check though what is their correlation with the stocks market.

Yes, there are a handful of holdings, yes, there is TER, but: you can buy it at IB. I was not able to find a way to buy individual Swiss government bonds at IB. And I don’t want to have another broker account in the first place, and if it is a Swiss one, then with my amounts that I want to invest in Swiss government bonds, I am quickly having much higher trading fees then the TER of the iShare ETFs.

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Totally right and I know that you don’t want to open another brokerage account but I guess your best or only option here right now would be to go with DEGIRO for the cheap fees. In case one day you change mind…

Meanwhile yields are getting attractive, especially for short duration

https://www.blackrock.com/ch/individual/en/products/261156/ishares-swiss-domestic-government-bond-13-ch-fund
Weighted Avg YTM: 0.80%
Weighted Avg Maturity: 1.52 yrs

https://www.blackrock.com/ch/individual/en/products/261157/ishares-swiss-domestic-government-bond-37-ch-fund
Weighted Avg YTM: 1.23%
Weighted Avg Maturity: 5.26 yrs

https://www.blackrock.com/ch/individual/en/products/261158/ishares-swiss-domestic-government-bond-7-ch-fund
Weighted Avg YTM: 1.41%
Weighted Avg Maturity: 11.29 yrs

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