SNB Rebuffs S&P’s Claims That It’s Responsible for Exacerbating Bond Spreads

As no major economic data was released in the European session today, we'll focus on some Swiss drama instead. Early in the European session the SNB chairman Thomas Jordan delivered a speech titled "Today's challenges from the SNB's perspective". In it, he mainly talked about the EUR/CHF peg and the outlook for the Swiss economy. The Swiss National Bank announced a peg of 1.20 versus the Euro last year in September and has so far been successful in defending the level.

Jordan said that the peg has been effective and added that the it limited the damage to the Swiss economy. He claimed that the EUR/CHF is still too low at 1.20 and 1.21, adding that the Swiss Frank should depreciate over time. The Frank has not depreciated as much as the Bank had forecasted, Jordan said. He added that the Bank still thinks the peg policy remains correct and they stand ready to take further measures.

On the Swiss economy, Jordan forecasts that although growth will be moderate, Switzerland will not fall into a recession, but he did mention that the Swiss labor market may lose momentum. He doesn't see a threat of inflation in "the foreseeable future" and added that the deflation period will end this year.

Jordan also talked about the crisis in Europe. The short term global outlook has worsened in the past few months he said. But the Bank is still positive on the Eurozone, the SNB's baseline scenario is for growth in the Eurozone in 2013. The Chairman added that structural reforms are needed to end the debt crisis. Draghi's bond buying plan has calmed markets and the plan's announcement had positive impact in Switzerland, Jordan said.

Earlier in the day, Standard and Poor's released a report focusing on the SNB. The rating agency claimed that SNB's interventions were responsible for exacerbating the bond spread differentials between Europe's periphery and its core. The Swiss Central Bank covered almost HALF of the 2012 financing requirements of the core (Germany, France, Austria, Netherlands, Finland). In 2011, the Bank only covered 9% of the core's financing needs. The SNB's investments in these countries totaled 80 Billion Euros in the first 7 months of the year, according to S&P.

The rating agency goes on to say that this bond buying is exacerbating the trend of diverging market conditions. The SNB is buying the core's bonds, thereby bringing down their interest rates but this also increases the interest rate spread differential with Europe's periphery. S&P goes on to say that the average interest rate for the core in 2012 was 2.15%, compared with 3.04% in 2011. As Central Banks typically hold bonds until they mature, its unlikely that there will be a reversal of this trend soon. But there could be some pressure on core interest rates if the SNB slows down its bond buying, S&P concludes.

The SNB was quick to reply to the report, saying it contains a fundamental error. The report doesn't account for SNB's deposits with other central banks. The Bank also disputed the 80 Billion dollar number, saying it is unfounded.

Despite Jordan's speech and the back and forth between S&P and the Swiss National Bank, EUR/CHF didn't move much today. The pair is up only 12 pips on the day, trading at 1.2110 at the moment.


Also this article you can find here:
http://www.buzzinforex.com/news/snb-rebuffs-sampprsquos-claims-that-itrsquos-responsible-for-exacerbating-bond-spreads