Money for nothing – Swiss government gets paid to borrow

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Imagine borrowing CHF 105,500 but only having to repay CHF 100,000 in 20 years time, including interest. You’d get an interest free loan plus an extra CHF 5,500 to keep.

This is what the Swiss federal government will do on 20 December 2019, except it will borrow CHF 196.6 million by issuing zero interest bonds at a price of 105.5%. The government will generate a CHF 10.25 million windfall.

In addition, investors interested in this issue of zero-interest bonds got fewer than they wanted. CHF 329.6 million sought a slice of the CHF 196.6 million issue.

This is the 14th time the Swiss Confederation has managed to issue loss-making bonds since 2010. The first lot were issued in June 2016.

On 2 December 2019, the Swiss Confederation had nearly CHF 61 billion of outstanding bonds at an average rate of interest of 2.2%. Some of the bonds are not repayable until 2064.

At the end of 2018, bonds made up 80% of the CHF 81 billion owned by the Swiss federal government. Average bond maturity was 10.6 years.