ZURICH, SWITZERLAND – The euro fell to a two-year low against the dollar in trading early Thursday over new fears that Spain may need a bailout, reports Reuters. Stock prices were down in Asia and investors are turning to US as well as Swiss bonds to park their capital, despite the low returns. Shortly before 10:00 Swiss time the two were trading at $1.287/euro.
Switzerland three month government debt bonds are showing increasingly negative interest rates, at -0.62 percent for bonds issued 29 May. The Swiss National Bank began issuing -1 percent negative interest bonds in late August 2011 after five weeks of zero interest bonds over fears the Swiss franc was too high and that investors were using it as a haven. Negative interest bonds yields then moved closer to zero and have fluctuated in the -0.1 to -0.25 range until this month.
Negative interest yields essentially meaning investors are paying the Swiss government to take their money, AP reports.
Jean-Pierre Danthine, vice-chairman of the governing board of the Swiss National Bank, told financiers in Geneva Wednesday that “unconventional measures” carry risks that must not be overlooked:
“In order to fulfil their mandates in this challenging economic climate, several prominent central banks, including the Swiss National Bank, have introduced and are continuing to maintain near-zero interest rates. This has exhausted the powers of conventional monetary policy, at a time when many countries have very little leeway with which to undertake fiscal policy manoeuvres. Central banks have therefore resorted to unconventional measures, which have helped create conditions that are more favourable to an economic recovery.
“While these unconventional measures appear to have provided a positive impetus, they also generate risks. In particular, they may result in central banks being perceived as capable of solving all the problems our economies face. This is clearly not the case. The measures represent an exceptional, tailored response to troubled markets and unprecedented economic circumstances. While monetary policy can promote conditions that are conducive to growth, it does not create value in and of itself. Instead, it is private sector innovation and productivity that are the engines of real sustainable growth.”