Swiss six-month bills offered a rate below zero at a sale today while the franc traded within 0.2 percent of its 1.20-per-euro cap as renewed concern Europe hasn’t stemmed its debt crisis spurred demand for safer assets.
Switzerland sold six-month bills at an average yield of minus 0.251 percent. Swiss National Bank interim chairman Thomas Jordan reaffirmed the bank will enforce the limit. Spain’s Prime Minister Mariano Rajoy said last week the nation is in “extreme difficulty,” while data released on April 6 showed Italian banks’ borrowings from the European Central Bank surged to a record in March.
“The safe-haven pressure on franc assets is likely to continue given negative headlines out of the euro zone and the fact that Switzerland still enjoys a healthy current-account position,” said Thomas Costerg, an economist at Standard Chartered Bank in London. “The Swiss National Bank will be able to defend the 1.20 cap, but the fact that it was breached a few times does raise eyebrows.”
The franc was little changed at 1.20279 per euro at 1:05 p.m. London time after strengthening to 1.19962 yesterday, the strongest level since the cap was introduced on Sept. 6. The currency was also little changed against the dollar, at 91.74 centimes.
The yield set at today’s auction compares with a rate of minus 0.099 percent at a previous sale on Feb. 21.
The Swiss National Bank set its foreign-exchange ceiling to protect exports after investors seeking a haven from the euro- area turmoil drove the currency to a record 1.00749 per euro. The currency breached the cap on April 5 and during yesterday’s trading day.
“The Swiss National Bank is enforcing the minimum exchange rate with all the means at its disposal,” Jordan said today. “We are prepared to buy foreign currency in unlimited quantities for this purpose. In this respect, our policies are totally unchanged.”
The Swiss currency on April 5 breached the limit for the first time since the measure was introduced. Jordan today said the trade occurred in “what is known as a segmented market” and that the situation was remedied within a few seconds by means of arbitrage.”
The trade last week was concluded “by banks that do not have an agreement relating to limits with the SNB -- in other words by banks that cannot or do not trade with the SNB,” Jordan said. “The central bank was at all times prepared to buy unlimited quantities of euros at 1.20 francs per euro.”
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