Bruno Gehrig: Review of the Swiss economy Introductory remarks by Prof Bruno Gehrig, Vice-Chairman of the Governing Board of the Swiss National Bank, at the half-yearly media news conference, Geneva, 14 June 2002. *  *  *  Developments in the financial markets From a Swiss vantage point, the situation on the financial markets in the first half of 2002 was predominantly influenced by the exchange rate development of the Swiss franc. The appreciation against the euro, which set in after 11 September 2001, has been arrested but has failed to bring about a sustained correction of the exchange rate. Moreover, the US dollar, too, has declined since April. At the beginning of June, it had fallen to its lowest level against the Swiss franc in two-and-a-half years. There are several reasons for the decline of the US dollar – by approximately 7% against the euro and the Swiss franc since the end of March, by approximately 6% vis-à-vis the yen – : imponderables of global political significance, growing doubts concerning a sustained upswing in the United States and – exacerbated by the collapse of Enron – the scepticism of investors with respect to the future development of yields. The record US current account deficit is increasingly being financed by means of short-term capital flows from abroad, which, by their very nature, are volatile. Against this background, high-risk investments generally showed a weaker trend. Equity markets and the US dollar lost in value while the gold price, bonds and the Swiss franc moved up.
Among the currencies (graph 1), the US dollar and the euro predominate with shares of 42% and 46% respectively. The maturities of the investments extend over the entire interest rate curve, with the average maturity being around five years. In the debtor categories, government paper predominates, accounting for a share of more than 50%. The rest comprises claims against international organisations and banks or bank-like borrowers with an above-average rating. Aside from these traditional bonds, US mortgage-backed securities were introduced in 2000, a new investment category which represents an ideal addition to the portfolio. In the context of the primary requirements specific to a central bank – extremely high liquidity, investment focus on the major currencies US dollar and euro, a mainly passive investment style – risk/return considerations are of prime concern. The goal is to achieve the highest possible return by means of all available concepts and techniques of modern asset management with adequate risk control. The investment strategy is developed by inhouse investment specialists. It is mostly implemented internally by a team of eight portfolio managers. We resort to external asset managers for the investment of approximately Sfr 4 billion (global bonds and mortgage-backed securities). Our entire investment activity is systematically monitored by risk specialists. In 2001, a yield of 5.2% was achieved on foreign exchange reserves. The average yield in the past four years was 6.3%.