some time, statistics have been suggesting a change in this behaviour. in contrast to the first phase, no additional customer deposits have been forming following the sale of foreign currency. one possible explanation for this development is that, instead of holding francs on their accounts, domestic investors have been keeping their assets in the relevant foreign currency, but have been hedging them using derivatives ( forward foreign exchange transactions and foreign exchange swaps ) ; 8 investors may, via their banks, have been purchasing francs using forward contracts, for instance. the banks, in turn, may have hedged the resulting foreign currency risk by demanding swiss francs on the spot market. this demand then ultimately resulted in upward pressure on the swiss franc, which the snb countered by means of appropriate foreign currency purchases. the rise in hedging transactions using derivatives is notable at swiss pension funds. for a long time, diversification and return considerations have prompted institutional investors to hold a significant portion of their assets in foreign currency investments. however, the associated currency risk is increasingly being hedged using forward foreign exchange as far as equity prices are concerned, the development of the swiss market has been similar to that of the rest of europe. cf. snb quarterly bulletin 3 / 2016, p. 26. for a detailed description of methodology and calculation of this item, cf. altermatt, lukas and baeriswyl, romain ( 2015 ), ‘ the effect of the monetary base expansion on the balance sheet of domestic banks ’, snb quarterly bulletin 1 / 2015, pp. 34 – 45. another possibility is that there have been significant changes in transactions with banks abroad. cf. auer, raphael a. ( 2015 ), ‘ a safe haven : international demand for swiss francs during the euro area debt crisis ’, snb quarterly bulletin 2 / 2015, pp. 40 – 52. seite 6 / 7 transactions. thus, as can be seen in chart 9, the pension funds ’ foreign currency exposure after hedging has declined steadily, while the share of their assets in foreign currencies has simultaneously risen to almost 50 %. in retrospect, full hedging of currency risk has turned out to be advantageous, due to the significant appreciation of the swiss franc and the comparatively low interest rate differential with other countries. at present, we are proceeding on the assumption that the economic outlook for the global economy will continue to firm. in the us, policy rates have been rising for some time and markets

the monetary policy instrument of negative interest aims to bring down the general level of interest rates in switzerland and to restore, partially at least, the interest rate differential with other currencies. since its deployment, a significant share of outstanding swiss franc bonds has been negative - yielding. these low interest rates make swiss franc assets less attractive, thereby helping to curb the currency ’ s overvaluation. the snb ’ s policy measures have thus affected the capital market, which plays an important role in the transmission of monetary policy to the real economy. in my speech today, i want to look at these effects from two angles. in the first part, i shall attempt to explain how low interest rates have impacted the behaviour of issuers and investors on the swiss franc capital market. in particular, i note that, despite much more favourable financing conditions, the swiss franc bond market has not grown over the last few years. at the same time, the share of foreign investors has steadily declined. in the second part of my speech, i address the question of how investors build and hold swiss franc positions resulting from the additional demand for swiss francs. available statistics seite 2 / 7 show that, for some time now, investors have increasingly been opting to build up swiss franc positions using forward foreign exchange contracts ( derivatives ). no increase in capital market debt despite record low interest rates despite the low interest rates, the swiss franc bond market has contracted slightly due to special factors. allow me to explain the context here in a little more detail. against the backdrop of low interest rates worldwide, the cost of borrowing has steadily fallen in recent years – and the snb ’ s policy of negative interest has further accentuated this trend in switzerland. one would have expected issuers to have exploited this situation to take on more debt – and that this, in turn, would have resulted in higher issuance and a greater volume of outstanding bonds. numerous countries with highly expansionary monetary policies have witnessed just such a trajectory, and hence a marked rise in capital market debt, in the last few years. however in switzerland, the opposite has occurred. as chart 2 shows, after peaking in spring 2011 at almost chf 560 billion, the volume of all outstanding swiss franc bonds trended sideways for four years, and since the introduction of negative interest in 2015, the total volume has even fallen by around chf 40 billion. it is evident that the domestic segment has been steadily growing since the financial