The Swiss National Bank’s surprise decision to end its exchange-rate cap signaled its confidence in further European Central Bank easing, which could further support U.S. debt and Eurozone hedged-equity exchange traded fund.
“The Swiss move is being interpreted as a signal the long-awaited QE in Europe is going to be announced next week,” Thomas Simons, a government-debt economist at Jefferies LLC, said in a Bloomberg article. U.S. yields “look too high relative to Europe if rates fall over there. We’re even going to have more currencies in the world looking for a home for investment.”
For instance, despite the the 3.5% dip Thursday, benchmark 10-year Treasuries have a yield of 1.77%. The iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF), which has a 7.72 year duration, shows a 1.85% 30-day SEC yield. Year-to-date, IEF is up 2.8%. In contrast, 10-year German Bunds have a 0.47% yield. [Foreign Investors Prop Up Treasury ETFs]
Meanwhile, thirty-year yields set another record low Thursday, touching 2.39%. The PIMCO 25+ Year Zero Coupon US Treasury (NYSEArca: ZROZ), which has a 27.4 year duration, has a 2.49% 30-day SEC yield. ZROZ is up 5.5% year-to-date.
During the Eurozone financial crisis, the Swiss franc quickly appreciated against the euro currency as a safe-haven asset. Consequently, Switzerland’s central bank was forced to maintain a foreign exchange cap by purchasing euro assets to keep a strong franc from hurting the country’s exporters.