December 9, 2016

Swiss bonds hit negative return territory

A lot of things are hidden in the pillar 3a, for instance, the interest on the bonds contained in the portfolios.

The legislation isn’t taking any action against this practice of hiding information, and the banks are glad about that because it stops customers from realizing that the bonds in the 3a funds are creating huge costs for anyone saving money in the pillar 3a.

I discovered this fact in a conversation with independent financial advisor Alain Lauber. To determine the scope of the negative interest in the 3a funds, we analyzed the large Swiss bond funds.

The result: the negative interest goes up to -1.12% (CS Swiss Franc Bond). That means that every single year, the CS Bond Fund is losing more than one percent of its value.

Why should the bonds in the pillar 3a funds fare any better? The pillar 3a funds are full of bonds, it is required by law.

If you have a 3a fund, you’re therefore already paying negative interest today.

The problem is simple: The interest rates for the bond prices today are so low that the bank fees are significantly higher. Interest + fees are negative in this case.

Negative interest of the largest Swiss bond funds (source: documents of the providers)

CS Swiss Franc Bond -1.12%

Migros Swiss Franc Obli -0.97%

Post Fonds 1 Bond -0.79% (return not specified, thus only fees)

UBS Fixed Income -0.97%

Swisscanto Bond Fund: -0.80%

Raiffeisen Swiss Obli -0.77%

One would think such funds are avoided by Swiss. Not at all. Over 450 billion Swiss francs are invested in bond funds and mixed funds, and banks are recommending them without telling people about this issue. 450 billion francs from Swiss savers is therefore subject to negative interest.

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