Swiss bonds: low-risk, lucrative, robust

Low risk thanks to Swiss quality

• Sound public finances
• Political stability
• Robust economy
• Stable currency
• Excellent creditworthiness
• Reliable debtor

Swiss government bonds are among the lowest-risk asset classes. What distinguishes them is the excellent creditworthiness of their issuer. Switzerland, with its solid public finances and political stability, has earned the highest credit rating from major rating agencies (AAA from Standard & Poor’s and Fitch, Aaa from Moody’s). This reflects the country’s high reliability as a debtor and underscores the low risk of default.

In addition, the Swiss franc (CHF), in which Swiss bonds are denominated, is one of the world’s most stable currencies and remains in demand as a safe haven during times of crisis.

Widely diversifiable

• Government bonds
• Corporate bonds
• Hybrid bonds
• Other bonds in CHF

Swiss bonds offer variety. In addition to federal government bonds, attractive alternatives include bonds issued by the cantons and other Swiss public institutions. Some of these securities are backed by a joint guarantee from the Swiss Confederation. While their risk is comparable to that of Swiss government bonds, they often offer attractive yield premiums.

Swiss corporate bonds are often issued by globally successful, high-quality Swiss companies with healthy balance sheets and good credit ratings. They are an important part of the generally robust Swiss economy. Some bonds also come from Swiss companies that are insulated from the global economy, such as public hospitals or real estate companies. Corporate bonds typically offer a yield premium over government or quasi-government bonds.

Bonds issued by Swiss cantonal banks are a mix of government and corporate bonds. They are less risky than corporate bonds and typically offer a yield premium over bonds issued by the cantons.

The Swiss bond market also includes a foreign segment, where governments, institutions, and companies from other countries issue bonds denominated in CHF. These bonds frequently offer a yield premium over their counterparts in the domestic segment.

This wide variety of Swiss bonds enables a broad risk diversification in a portfolio across borrowers, credit ratings, industries, and maturities. The broader this diversification, the more return opportunities can be captured. This can stabilize performance over time.

The key is to take on risk only when it comes with adequate compensation.

Additional benefits for investors in Swiss bonds

• Regular income
• Ample liquidity
• High investor protection
• Sustainable investment choices

Bonds regularly pay interest during their term at the rate specified on the coupon, regardless of whether their prices fluctuate. At the end of the term – and provided the borrower meets its payment obligations – the investor’s initial investment (par value) is returned. As noted earlier, the high financial quality of many Swiss bonds indicates a low risk of default.

Swiss bonds are generally liquid, meaning they can be traded at virtually any time thanks to sufficient supply and demand.

The Swiss bond market is regulated by the Swiss Financial Market Supervisory Authority (FINMA), which ensures legally compliant and transparent trading and therefore a high level of investor protection.

Switzerland is a model for sustainable practices. The Swiss federal government and other Swiss public institutions, as well as numerous Swiss companies, issue bonds to finance projects that protect our environment and promote the well-being of our society, such as green real estate and modern, reliable hospital infrastructure. Institutions and companies that focus intensively on sustainability issues are generally well equipped to meet future challenges. Including such borrowers in a bond portfolio can improve its risk-return profile in the long term and contribute to a more stable performance.

Manage bond portfolios with care

• Identify market inefficiencies
• Dynamically adjust the portfolio
• Precisely manage duration
• Continuously monitor risks
• Master credit research

Inefficiencies can arise in the Swiss bond market, for example when comparable securities trade at different prices because elevated market volatility distort their fundamentals. These inefficiencies can be actively capitalized on by entering a so-called relative value position: buying the security deemed undervalued while simultaneously selling the security deemed overvalued.

The basic rule for bonds is that falling interest rates or yields go hand in hand with rising prices – and vice versa. When interest rates or yields rise, a bond portfolio with a shorter duration – this metric measures the average residual term of all securities in the portfolio – is less susceptible to losses. This requires active management through a flexible portfolio composition.

What is essential is continuous monitoring of the portfolio and dynamic adjustment to market developments.

The more thorough and extensive the credit research, the greater the chances of success.