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Swiss National Bank Says S&P Bond Estimate Is ‘Unfounded’

Swiss National Bank Bought EU80 Billion Euro Core Debt, S&P Says
The Swiss central bank’s action has “significantly contributed” to declining yields on bonds issued by these countries, S&P said. Photographer: Gianluca Colla/Bloomberg

Sept. 25 (Bloomberg) -- The Swiss National Bank said a Standard & Poor’s report that it spent about 80 billion euros ($104 billion) this year through July buying debt from the so-called core euro-area countries is “unfounded.”

The decision by Switzerland’s central bank to stem the appreciation of the franc has led to a “de facto recycling” of funds into Germany, France, the Netherlands, Finland and Austria, S&P credit analysts led by Frank Gill in London wrote in a report today. That’s “significantly benefited yield levels on the most-liquid euro-zone sovereign bonds, not least German and French government-debt securities,” they wrote.

The SNB said in an e-mailed statement the report contains a “fundamental error” and its conclusion is incorrect.

“It ignores the sizable increase of SNB deposits with other central banks and international institutions, which are published monthly by the SNB,” the Zurich-based bank said. “The conclusion by S&P that the Swiss National Bank has bought about 80 billion euros of government bonds of core euro-zone countries is unfounded.”

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In an e-mail statement, S&P said “we stand by the conclusions of our report.

“Irrespective of the rise in SNB deposits with other central banks (which has risen by significantly less this year than bonds held by the SNB), our analysis and the SNB’s own data suggest a very substantial increase in SNB purchases of core euro-zone government debt in recent months,” S&P said. “The SNB does not disclose the make-up of its bond holdings, but we believe the assumptions underpinning our analysis are reasonable.”

The S&P report said the Swiss central bank’s euro-area bond buying in the period was about 48 percent of the estimated combined full-year deficits for the euro-area’s core for 2012. That’s up from 9 percent in the full-year 2011.

French and Austrian bonds have advanced since S&P downgraded both the nations to AA+ from AAA on Jan. 13. The yield on French 10-year debt dropped to a record-low 2.002 percent on Aug. 3 and was at 2.28 percent as of 5:17 p.m. London time today, from 3.08 percent the day it was downgraded. Similar-maturity Austrian debt yielded 2.13 percent, down from 3.07 percent on Jan. 13.

Credit Ratings

While the SNB “has probably contributed to keep rates at all-time lows for the core governments, their ratings do not depend on the SNB policy,” the S&P analysts wrote in the report. The ratings “reflect our views on the fundamental factors determining sovereigns’ ability to service financial obligations.”

Foreign-exchange reserves held by the SNB soared to 79 percent of Swiss gross domestic product in mid-2012, from 15 percent at the same period in 2008, the credit-rating company said.

The SNB’s currency holdings reached 365 billion francs ($391 billion) in the four months through June. Money held at central banks, the International Monetary Fund and the Bank for International Settlements accounted for 72 percent of the gain.

The SNB introduced the currency ceiling on Sept. 6, 2011, after the franc’s surge to near parity with the euro raised deflation threats and eroded export competitiveness.

To contact the reporters on this story: Vidya Root in Paris at; David Goodman in London at; Paul Verschuur in Zurich at

To contact the editor responsible for this story: Paul Dobson at

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