News conference
Zurich, 16 December 2021
Andréa M. Maechler
Introductory remarks by Andréa M. Maechler
I will begin my remarks with a review of developments on the financial markets over the past
half-year. Then I will update you on the imminent changeover from Swiss franc Libor to
SARON. I will close by talking about the new Secure Swiss Finance Network, which will
further strengthen the cybersecurity of the Swiss financial centre.
Situation on the financial markets
Volatility on the financial markets - especially the interest rate markets - has increased since
our last news conference. In the summer months, concerns about the global growth outlook
and the spread of new coronavirus variants contributed to a decline in yields on the
government bond market. Since the autumn, trading activity has increasingly been dominated
by inflation concerns and expectations in some quarters that the major central banks could
raise interest rates. Both market-based inflation expectations and yields on nominal
government bonds have risen again due to solid global demand, supply shortages and - for a
time - markedly higher commodity prices. Simultaneously, volatility has also increased,
partly due to uncertainty surrounding rising coronavirus case numbers.
Overall, the nominal yields of long-term government bonds issued by the US and the euro
area countries have now more or less returned to their mid-year levels. This also applies to
Switzerland. The yield on the 10-year Confederation bond currently stands at -0.3%
(cf. chart 1).
International differences in the inflation and growth outlook have also led to some divergence
in expectations over recent months regarding future central bank policy. While the US Federal
Reserve and the Bank of England held out the prospect of a gradual departure from their
expansionary monetary policy, the European Central Bank and the Bank of Japan emphasised
that they intend to maintain their expansionary stance for the foreseeable future.
In contrast to the government bond markets, the equity markets have largely shrugged off
economic and inflation concerns since mid-year in light of very favourable overall corporate
results, strong demand for goods across the economy, and supportive fiscal and monetary
policy. Positive risk sentiment was only temporarily dampened by supply bottlenecks in
manufacturing, turbulence on the Chinese real estate market and, most recently, concerns
about new coronavirus variants.
The leading share indices in the US and Europe have recorded significant price gains since the
summer and have reached new highs. The S&P 500 Index in the US has risen by around 9.0%
since the end of June. The Stoxx Europe 600 increased 4.5%. Switzerland's SMI has gained
around 5.0% since the summer and thus also hit an all-time high (cf. chart 2).
In the foreign exchange markets, price developments were mainly shaped by the divergent
outlook for international monetary policy. While the trade-weighted US dollar has appreciated
by around 3.0% since mid-year, the corresponding euro and yen exchange rates have
weakened by 3.0% and 0.7% respectively (cf. chart 3). In nominal, trade-weighted terms, the
Swiss franc has appreciated by around 3.0% since June. In real terms, however, the
appreciation is less pronounced, as my colleague Thomas Jordan has explained. Major drivers
of this appreciation - besides the broad weakening of the euro - were uncertainty about the
global inflation outlook and concerns about the spread of new coronavirus variants. The Swiss
franc remains highly valued.
Final sprint in Libor changeover requires close attention
Let me now say a few words about the imminent changeover from Swiss franc Libor to
SARON. The Libor reference interest rate will be discontinued at the end of this year for the
Swiss franc, the euro, the Japanese yen and the pound sterling. Only for the US dollar will
Libor rates remain in place for specific maturities until June 2023. Transitional solutions are
planned for the yen and the pound sterling. However, as with the US dollar, no new
Liborreferencing business will be possible in these currencies from the end of this year. In Swiss
francs, SARON will completely replace Libor as the key money market reference rate at the
end of 2021.
The changeover from Swiss franc Libor to SARON is moving forward at a rapid pace and
work on reducing the volume of Libor-based contracts in Swiss francs is well advanced in
Switzerland. Since mid-year, virtually all new financial products with variable interest rates
have referenced SARON.
The cash market transitioned to SARON at an early stage. Since June 2021, new business
across all loan segments has been almost exclusively SARON-based (cf. chart 4). According
to data collected by the financial market supervisory authority (FINMA), the number of
outstanding Libor-based loans is low.
Developments on the interest rate derivatives market in recent months have also been positive
(cf. chart 5). The volume of SARON swaps traded has increased markedly and liquidity has
improved significantly. The SARON swap curve has also established itself as the sole price
reference on the capital market.
The end of Libor is thus fast approaching. Nevertheless, the last remaining operational
adjustments that need to be made before year-end - for example, those relating to certain
interest rate swaps or interest rate futures - will once again require close attention on the part
of all market participants. This will ensure that the changeover from Libor to SARON is
completed successfully.
Launch of the SSFN communication network
This brings me to my last topic, the Secure Swiss Finance Network - SSFN for short - which
the SNB launched together with SIX in November.
The SSFN is a communication network that enables secure data exchange between authorised
financial market participants and Switzerland's financial market infrastructures. It protects
against major internet risks (e.g. distributed denial-of-service, or DDoS, attacks), thereby
strengthening the cybersecurity of the Swiss financial centre. The SSFN is based on the
innovative SCION network architecture developed at ETH Zurich. While the SSFN will
initially run in parallel with one of SIX's existing communication services (Finance IPNet), it
will replace this service in the medium term.
In addition to the security features mentioned, the SSFN is also flexible and robust.
Communication in the SSFN is based on cooperation among various telecom providers, who
together form a network. Since communication within this network is not dependent on a
single provider, the SSFN offers a high level of reliability and resilience.
These characteristics make the SSFN very relevant for the SNB, especially in the context of
cashless payments - and, specifically, the new 'instant payments' service being planned by
the banks. The SSFN provides Switzerland with the fast and permanent data transmission
required for instant payments within a highly secure environment.
Zurich, 16 December 2021
Andréa M. Maechler
News conference
Charts
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Zurich, 16 December 2021
Andréa M. Maechler
News conference
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