Interest-bearing tradable debt certificates issued by the Swiss National Bank (SNB), so-called SNB Bills, have emerged as a new tool for liquidity management for Swiss pension funds.
SNB Bills are the “most exciting tool” for liquidity management of pension funds, with attractive interest rates close to those of the national bank, without counter-party credit rating – “a better counter-party does not exist” – said Lukas Riesen, head of asset/liability management and actuarial consulting at consultancy PPCmetrics, during a webinar organised by the Innovation Second Pillar (IZS).
SNB Bills can play an important role in negotiations with banks on interest rates, as Pensionskassen can turn to the SNB forcing lenders to make a more attractive interest rate offering, he added.
They are a relatively new tool that de facto allows pension funds to bypass commercial banks and park money directly with the SNB, Riesen explained.
A few pension funds buy SNB Bills but have a “good experience”, he said. Pension schemes refrain for now from buying the Bills because of the American-style auction with each investor paying a different price without a price limit, he added.
Returns on SNB bills are “relatively close” to the interest rate of the SNB, around 1.38-1-58% between 22 February and 28 March this year, against SNB’s key interest rates of 1-50-1.75%, according to figures showed by Riesen during the webinar.
Auctioned weekly on the SIX Repo trading platform, SNB Bills represent a monetary policy tool, with durations spanning from 1 month to one year, but without credit rating attached.
The SNB started to offer the Bills on a large scale back in 2022, but those instruments were not very appealing for foreign investors who did not fully understand the new option, and who had to keep an eye on creditworthiness guidelines in investment regulations, Riesen said.
Credit worthiness also plays a role for Swiss investors, but the SNB is ready to make exceptions, he added.
SNB Bills have become relevant in the market with an outstanding volume peaking at CHF300bn (€319bn) in 2023, and today at over CHF100bn, against a Swiss bond market volume of CHF500bn, Riesen added during the presentation.
Pensionskassen should check whether they can invest in SNB Bills according to their investment rules, Riesen said calling it a “formality”, noting that schemes should also assess what strategy to pursue during an auction for the Bills.
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