Explaining One-Year Yield Spikes in Swiss and Danish Government Bonds
Summary
The document describes unusually high one-year government bond yields relative to nearby maturities in Switzerland and Denmark, based on rates observed in 2012. The curve points are presented as traded yields rather than rates synthetically compounded from forward rate agreements. The question is why the one-year point was an exception while shorter and longer maturities appeared more typical.
A response proposes that anticipated issuance of a eurozone rescue-fund bond at a positive yield could have affected demand at the one-year maturity. It suggests that investors might have parked euro funds in Swiss assets, while Danish assets were viewed differently because of Denmark’s relationship to the European Union. This is an attributed, contextual explanation rather than a demonstrated causal analysis: the material provides no market-flow data or comparison of specific bonds. The observations are historical and should not be treated as a general explanation for yield-curve humps or as evidence that similar spikes will recur.
Key ideas
- The cited 2012 yield observations show a marked one-year bump in Swiss and Danish government curves.
- The question distinguishes traded bond yields from rates constructed using forward agreements.
- A response links the bump to expected one-year eurozone rescue-fund issuance and investor demand.
- The suggested explanation is tentative and is not supported by direct evidence on flows or bond pricing.
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Full text
# Why for one year (and not two or three) government bonds (there is a spike for Switzerland & Denmark)? # Why for one year (and not two or three) government bonds (there is a spike for Switzerland & Denmark)? On 10.10.2012, I have looked at the bond-rates and, both for Switzerland and Denmark, there is a discontinuity/spike at 1Y, as per below Switzerland: ON= -0.09, 1W= -0.180, 1M= -0.230, 3M= -0.2, 6M= -0.01, 1Y= +0.250, 2Y= -0.124, 4Y= -0.077, 5Y= 0.060, etc (normal curve) Denmark: 1M= -0.350, 2M= -0.300, 3M= -0.150, 6M= -0.150, 1Y= +0.320, 2Y= -0.028, 3Y= +0.114, etc (normal curve) Could somebody hint why? They are no artificial rates (obtained by compunding with FRAs) but actually traded ones. I mean the governmental bonds, which seemed to be "live" on Denmark http://www.forexpros.com/rates-bonds/denmark-government-bonds?maturity_from=10&maturity_to=290 for Denmark and http://www.forexpros.com/rates-bonds/switzerland-government-bonds?maturity_from=10&maturity_to=290 for Switzerland. Right now the charts links appear to be not working :(this is a window I used to have opened today) Denmark - Government Bonds Pair Yield Prev. High Low Chg. Chg. % Time Denmark 1-Month -0.350 -0.350 -0.200 -0.350 0.000 0.00% 7:44:14 Denmark 2-Month -0.300 -0.120 -0.250 -0.350 -0.180 -150.00% 16:01:03 Denmark 3-Month -0.150 -0.150 -0.150 -0.200 0.000 0.00% 16:01:03 Denmark 6-Month -0.150 -0.150 -0.150 -0.200 0.100 -40.00% 10/10 Denmark 1-Year 0.370 0.370 0.370 0.200 0.050 15.62% 6:52:14 Denmark 2-Year -0.021 -0.021 -0.005 -0.040 0.011 36.36% 15:00:39 Denmark 3-Year 0.086 0.093 0.130 0.056 -0.007 -7.53% 18:10:46 Denmark 5-Year 0.289 0.290 0.319 0.264 -0.001 -0.34% 17:00:12 Denmark 8-Year 0.897 0.924 0.945 0.865 -0.027 -2.92% 18:21:17 Denmark 10-Year 1.540 1.541 1.552 1.483 -0.001 -0.06% 15:04:48 Denmark 15-Year 1.490 1.489 1.512 1.422 0.001 0.07% 18:23:15 Denmark 30-Year 2.143 2.166 2.176 2.101 -0.023 -1.06% 18:23:43 ## Answer by user7056 (score 1) https://quant.stackexchange.com/a/4654 http://uk.reuters.com/article/2012/11/27/efsf-bond-idUKL5E8MR6I220121127 Nov 27: The order book on the European Financial Stability Facility one-year syndicated issue is over EUR 5bn according to a bookrunner on the deal. The eurozone rescue fund opened books this morning via JP Morgan, Morgan Stanley and Natixis at guidance of 0.23% to 0.25% with pricing scheduled for later on Tuesday. The transaction will be rated A-1+/P-1/F1+, which are EFSF's short-term debt ratings. The one year spike can be explained if it has been known few months in advance that eurozone large issue, with positive rates, was going to come, in one year eurobonds exactly, and not with longer maturities (Mario Draghi spoke in September about one up to three years). Switzerland is staying positive for 1Y (the mass of EUR money was "parked") while Denmark became a bit negative for 1Y as well (there is still scepticisme regarding the 1Y-EUR with Denmark continued to be considered a better option that Switzerand, which is not in the European Union).
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