Very long-dated bonds were in particularly high demand – a fact which resulted in a flattening of the yield curves. Yields on ten-year government bonds in both the US and Germany have fallen by around 60 basis points since the beginning of the year, due in part to the monetary policy decisions of the major central banks. For instance, the Bank of Japan’s decision in January to apply negative interest to central bank deposits took markets by surprise. In March, the ECB decided to further expand its asset purchase programme and took its deposit rate deeper into negative territory. In the same month, the US Federal Reserve signalled that interest rates were likely to rise less quickly than originally anticipated. Yields on the ten-year government bonds of some highly rated countries like Switzerland and Germany touched new lows in June. In Switzerland, for example, the yield on ten-year Confederation bonds fell to –0.5%. Most recently, they have been trading around 40 basis points lower than at the beginning of the year. More than 90% of outstanding Confederation bonds are currently negative yielding (slide 2). However, Switzerland is certainly not the only country witnessing this scenario, which has now become a global phenomenon; some 17 states are currently reporting sub-zero yields on government bonds and, overall, more than a quarter of government bonds outstanding worldwide are trading at negative yields. On the foreign exchange markets, the US dollar and pound sterling have depreciated on a trade-weighted basis since the beginning of the year (slide 3).

New money market platform goes live The new electronic money market trading platform for repo transactions began operating at the end of February and has completely replaced the old system. The new trading platform’s name, CO:RE, is short for “Collateral & Repo”. The technical changeover to the new system went smoothly for all parties involved. The new trading platform gives more than 160 national and international participants a single access point for procuring and investing Swiss franc liquidity as well as managing collateral (i.e. pledged securities). It also enables the SNB to carry out its open market operations on the money market. After more than 15 years of service, the system which CO:RE has replaced was no longer able to meet the needs and technical requirements of market participants. As you know, the SNB is currently implementing its monetary policy using exceptional measures – negative interest on sight deposits and foreign exchange market interventions. In these circumstances, standard money market instruments – repo transactions and SNB Bills – are not being deployed. It is nonetheless important that counterparties are in a position to carry out these transactions seamlessly. The SNB therefore conducts small-volume tests. When a series of tests conducted in autumn 2014 revealed that some market participants were no longer sufficiently familiar with operational implementation, a second round of tests was launched in May 2016. This exercise will be concluded at the end of July. These kinds of test operations, which help ensure counterparties’ operational readiness, are greatly appreciated by market participants.