The history of the “May to September” effect on the swiss franc
And this is the way history repeats during the weak US months May to September on the other side of the Atlantic:
Between March and June 2009, the SNB managed to maintain the 1.50 EUR/CHF “line in sand” only thanks to intensive FX intervention.
Same picture in May 2010: Strong demand for the Swiss Franc, even multiplied by the first Greek crisis. The EUR/CHF fell to 1.40. When the SNB had abandoned the FX interventions the Swiss Franc even reached parity with the dollar and EUR/CHF 1.30 in September 2010.
After the typical US rebound in Q4/2010, the Swissie soared again. Like regularly it reached a first peak in the May 2011 up to a EUR/CHF 1.22 and a USD/CHF of 0.83. Then the increase of the Swiss currency even accelerated to reach EUR/CHF of 1.0076 and USD/CHF 0.71 in August 2011.
The SNB knows this “May to September” effect and timed the epic introduction the EUR/CHF floor of 1.20 slightly before the yearly rebound of the US economy and not in the months of July and August 2011, when the franc was hovering between 1.00 and 1.15.
Similarly, the central bank used the positive US months between October 2011 and April 2012 to cut its heavily overloaded balance sheet by around 17% of the currency reserves and sold
The SNB must sell some reserves until May 2013
The big money supply will move Swiss real estate prices upwards and cause Swiss inflation to rise. More about Swiss inflation here.
Sterilization was easily possible: During the sterilizations between 2010 and 2011, investors were keen on the close to zero yielding SNB bills, as Dewet Moser of the SNB proudly explained. But he did not mention that these measures were accompanied with big SNB losses and a depreciation of the EUR/CHF from 1.40 to 1.20.
Given that the Swiss have structural advantages like a high level of human capital especially after the Swiss/EU bilateral agreements, high availability of capital and low taxes, the franc must appreciate with the time. This is reflected in the interest rate parity. We judge that in the very long-term the franc must rise by at least 1% per year against the euro zone with its higher inflation rates. We call this 1% the “required yield”.
We computed a yield of 0.49% for SNB investments for Q3/2012 based on coupon and dividend payments. As we all know, government bond yields have arrived at the “zero border”. This 0.49% is far under the required yield of 1% and pushes central banks, similarly as insurances, into risky investments,. The SNB increased equity holdings to 12% despite the slowing global growth. Higher reserves can push the obtained yield even further down, because higher yielding older investments (e.g. U.S. treasuries bought in 2007) are replaced with lower yielding ones (e.g. treasuries bought in 2012).
Visto en: http://snbchf.com/2013/01/sell-in-may-c ... n-october/