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
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:
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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).
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0.1% for a weighted average maturity of 5.04y for the intermediate term bond fund (5 holdings…).
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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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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…
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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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My line of thinking was that I wouldn’t need to bother with single bonds and having to renew them when they expire. I could simply park my money there and let the ETF do all the work for me.
What surprised me though was that only iShares seemed and seems to have Swiss government bonds ETF. Must be a really small market.
It is a small market and with negative yields I guess only hardcore assets allocators were probably buying them. Now when yields are reasonable again, I guess we are going to see more swiss government bond funds. By the way I also checked mutual funds for Swiss government bonds, didn’t find anything useful.
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A large part of the swiss bond funds is covered by institutional and pension funds where retail investors don’t have access to.
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Do I understand correctly that this yield (YTM) number is what is called the nominal yield? And then one should subtract the inflation rate from that number to get the real yield?
Note that I have not much clue, just trying to make sense of all these terms I read 
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Yes. If all bonds are held until matured.
Yes, you can put it this way.
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Why bother about real yields? Easier to compute everything in nominal yields.
It depends what you mean with nominal because it can be understood in two ways.
In its first meaning, nominal means “whatever is written on the coupon” so the ratio between coupon and principal.
The YTM is the “actual” yield taking account the bond price, which is different from the principal because of the current market rates. It could also be considered “nominal” in the sense that, although it is not the coupon, it does not take inflation into account.
Then there is the real YTM which is the “nominal YTM” minus inflation.
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Totally agree with you. I just wanted to point out that although Swiss bond yields look much more interesting than what they used to be a few months ago, taking in account inflation (in Switzerland currently around 3-4% if I am not mistaken), the real yield is still in negative territory.
Of course this is still much more interesting than your average Swiss bank account which is now starting to offer interest rates of (only) 0.3-0.5%.
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Well, it’s not so easy. Let’s take the fund with the shortest maturity. YTM is 0.8% in 1.5 years. Minus TER of 0.15% leaves 0.65% p.a. Then taxes on distributions, i.e. coupon of 2.4% 
. Let’s say 20% marginal income tax. So 0.48% p.a. goes to taxes 
. We are left with 0.2%. While with savings account giving 0.5%, we are only taxed on these 0.5% and are left with 0.4%.
Not a result that I expected, but this exactly why it is important to do actual calculations. Why so? Because institutions can buy short term Swiss government bonds, but they can’t deposit cash at 0.5% p.a. (or can they?).
So, again, as a private investor, you are better off with investment products that privilege private investors.
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Very interesting, thank you for the detailed calculations. This means that at this point of time one should either wait for yields to go higher which is probably the case until end of the year, or go for longer duration bonds. Then the downside with longer term duration bonds you introduce more price volatility and sensitivity to rising interest rates…
Well, I guess if SNB rises rates, YUH will follow in their publicity stunt.
Or Kassenobligationen, which have higher yield than bonds of the same duration and don’t have this problem of coupon being higher as yield.
When I am thinking about it now, bonds, individual or in a fund, might become really interesting when/if their market price drops below the nominal value. Then a part of the yield will be coming from a tax-free “discount” vs. the nominal value.