Swiss Note Rally Sends Yield to 18-Month Low as Referendum Looms

Investors in Switzerland’s bond market are joining currency traders in signaling concern that a a proposal to boost gold reserves risks damaging the central bank’s ability to defend its cap on the franc.

The Swiss five-year note yield had its lowest close in 18 months today, while the franc appreciated to within 0.2 percent of the 1.20-per-euro ceiling set by policy makers in an effort to support the economy.

“There’s some growing concern about this gold referendum,” said Peter Rosenstreich, the chief foreign-exchange analyst at Swissquote Bank SA in Gland, Switzerland. “People are positioning ahead of it. The ballots are out and people are voting now.”

A vote in favor of imposing new rules on the nation’s gold holdings at a Nov. 30 referendum would be an invitation “to speculate against the central bank,” Swiss National Bank President Thomas Jordan said in an interview with Neue Zuercher Zeitung on Nov. 6.

The rate on Swiss five-year notes fell two basis points, or 0.02 percentage point, to 0.04 percent at 5 p.m. London time, the lowest closing level since May 2, 2013. The two-year yield declined five basis points to minus 0.12 percent, the steepest decline since May 22.

The franc advanced to 1.20218 per euro today, the closest it has come to the cap since September 2012. Options traders paid a 0.67 percentage-point premium today for three-month contracts to sell the euro versus the Swiss currency over those allowing for purchases, data compiled by Bloomberg show. That’s the most since October 2012.

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