These doubts are reflected in a significant increase in risk premia for sovereign debt in these countries, which has prompted them to establish major cost-cutting programmes. This situation is weighing on financial markets, despite the relatively favourable reports of economic recovery at the global level. Indeed, current market uncertainty has reached a high level, although it remains lower than that observed during the recent crisis. To give an example, the VIX index (which measures uncertainty on the equity market) and the CDX index (which measures credit risk) are both rising again. However, they are still significantly lower than at the end of 2008, i.e. at the peak of the subprime crisis (cf. chart 1). The uncertainty associated with the fiscal situation of certain European countries has also triggered another rise in tension on the interbank market for US dollars. To counter this, several central banks, including the SNB, have reactivated swap facilities in cooperation with the Federal Reserve in order to provide dollar liquidity that may be required for the smooth functioning of the markets. In Switzerland, the interbank market has remained calm. Indeed, the ample supply of liquidity has reduced Swiss franc interbank rates. As can be seen in chart 2, risk premia on the Swiss franc interbank market have also declined. They fell by more than a half in May while, during the same period, US dollar risk premia on the interbank market in the US rose again. Alongside the uncertainty, investor risk aversion has grown over the last few months.
In the first stage, during the crisis, the SNB made use of EUR/CHF swaps, while in the second stage, when it was confronted with the appreciation of the Swiss franc, it intervened on the foreign exchange market. As part of these unconventional measures, the SNB purchased Swiss franc bonds issued by private sector Swiss borrowers and temporarily extended the terms of its repo operations. Today I am going to focus on the impact that the SNB’s interventions have on its balance sheet. In these interventions, the SNB purchased euros as well as, to a lesser extent, US dollars. These acquisitions led to a significant increase in currency reserves, which rose from CHF 95 billion in December 2009 to over CHF 230 billion at the end of May 2010. The foreign exchange acquired through SNB interventions has been placed in securities. The SNB’s investment policy is founded on the criteria of security and liquidity, but also return. In order to satisfy the requirements of security and liquidity, the SNB has focused on the purchase of liquid instruments of first-class quality. All investment activity is carried out according to a strategy based upon diversification, while also taking into account potentially major but low-probability events. A further aim of this strategy is to ensure maximum resilience of the SNB balance sheet. For the sake of completeness, let me add that, given the accumulation of additional dollar reserves, the issuance of SNB Bills initiated in February 2009 to finance the SNB stabilisation fund is no longer necessary.