Jan 15 (Reuters) - All Swiss government bill rates and bond yields out to nine- year maturities traded below zero on Thursday, after the Swiss National Bank stunned markets by scrapping its exchange rate cap on the franc and lowered interest rates to -0.75 percent. This was unprecedented in modern times, and analysts said it was only a matter of time before the benchmark 10-year yield dropped below zero too. Swiss rates and yields out to five years had already been trading below zero, but the SNB's bombshell turned the yield on nine-year bonds negative for the first time...As my friend Bubba says, "lemme summit furya:" the negative interest rate means bond buyers have to pay the Swiss Government to take their money. That's not an investment; it's like paying protection money to the mob. CNN Money on the Swiss bonds:
That means buyers of those bonds are essentially taking a loss just to hold onto those assets. They think their money is better off losing a few cents [per dollar] than putting it elsewhere. "It's basically a fee for fear," said Nicholas Colas, chief market strategist at ConvergEx. "Fear of deflation, fear of volatility in other capital markets and general fear of the [un]known."To a Keynesian economist, deflation is the devil. Deflation puts power in the hands of the people, not the elites. In a deflationary cycle the best place to put your cash is under the proverbial mattress, because as prices and values fall, purchasing power increases; your cash will be worth more in goods tomorrow than it is today.
Speaking of that, the Swiss franc plunged as a result of the removal of the "exchange cap". Last night, there was something of a run on Swiss banks as the Swiss exchanged Swiss francs for Euros, at a profit of up to 39%.
Just a little preview of coming attractions. Got preps?