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22 Apr 2015
SNB move increases the odds of more negative rates – SG
FXStreet (Barcelona) - Sebastien Galy of Societe Generale, views that the SNB move to tighten its rule on sight deposits increases the odds that it will go for more negative interest rates, especially faced with the risk of a Greek event.
Key Quotes
“The SNB tightened its rule on sight accounts so that very few entities are exempt from negative interest rates. Such funds could avoid the penalty of deposit with commercial banks or the Swiss sovereign curve (-1.10 at 1Y). Whether it is the SNB pension fund or other it forces these agents to take on more risk. With most assets overbought in Switzerland it means mostly buying in the US as the reluctance to buy in the Eurozone remains extreme.”
“What amounts are involved? probably decent ones when aggregating the public enterprises. The Swiss Federal revenue right now is around CHF9bn so that the canton level would be a fraction of it (SZPFRVTR Index). But negative rates would only encourage the Cantons to pay faster and do more cash optimization and the SNB specifically mentions that the accounts of Geneva and Zurich were barely used.”
“Public Pension funds on the other hand have static amounts of cash at risk. The PUBLICA pension fund has 36bn and presumably had a strong incentive to be long CHF. It’s strategic asset allocation for open PF had 23% in Swiss Money Markets and Bonds, 50% for closed pension funds in 2013.” “Presumably a fair amount of this is now in sight deposits say 35% of 35bn or CHF12bn. The SNB pension fund is likely decent but only a fraction of that amount would be in cash.”
“In comparison sight deposits at the {SNB SZMSTSDF Index} are CHF443bn. Sight deposits have reached a plateau since February with the latest release on 03/06/15.”
Key Quotes
“The SNB tightened its rule on sight accounts so that very few entities are exempt from negative interest rates. Such funds could avoid the penalty of deposit with commercial banks or the Swiss sovereign curve (-1.10 at 1Y). Whether it is the SNB pension fund or other it forces these agents to take on more risk. With most assets overbought in Switzerland it means mostly buying in the US as the reluctance to buy in the Eurozone remains extreme.”
“What amounts are involved? probably decent ones when aggregating the public enterprises. The Swiss Federal revenue right now is around CHF9bn so that the canton level would be a fraction of it (SZPFRVTR Index). But negative rates would only encourage the Cantons to pay faster and do more cash optimization and the SNB specifically mentions that the accounts of Geneva and Zurich were barely used.”
“Public Pension funds on the other hand have static amounts of cash at risk. The PUBLICA pension fund has 36bn and presumably had a strong incentive to be long CHF. It’s strategic asset allocation for open PF had 23% in Swiss Money Markets and Bonds, 50% for closed pension funds in 2013.” “Presumably a fair amount of this is now in sight deposits say 35% of 35bn or CHF12bn. The SNB pension fund is likely decent but only a fraction of that amount would be in cash.”
“In comparison sight deposits at the {SNB SZMSTSDF Index} are CHF443bn. Sight deposits have reached a plateau since February with the latest release on 03/06/15.”