They show the observed intraday frequency of certain fluctuations in yield on US or Japanese government bonds for the period since 2001. Fluctuations of the magnitude described here are extremely rare events. Such episodes prompted fears that market distortions of this kind could recur at any time. What do these changes in market liquidity mean for the SNB? At the operational portfolio management level, we are affected by the deterioration in corporate bond liquidity. The greatest difficulty stems from the fact that trading is increasingly focused on a comparatively small section of the corporate bonds outstanding. This has meant that large purchases or sales are more difficult, and more expensive, than before the financial crisis. This, in turn, has necessitated some adjustments in the way corporate bond portfolios are managed. The SNB is now more active in the primary sales market than before, and has also expanded its counterparty base. In addition, depending on the liquidity situation, transactions are having to be split into smaller tranches. Overall, therefore, the management of corporate bond portfolios has become more complex and more demanding. By contrast, the markets for highly rated government bonds continue to be very liquid. Shortterm price fluctuations do not place any limitations on the management of the government bonds in our portfolio. As I have already mentioned, we have a very long investment horizon. We hold our investments for at least one full economic cycle and we are not obliged to sell, even in periods of stress.
More recently, the Swiss franc exchange rate to the euro was about 10% above what it had been shortly before the discontinuation of the minimum exchange rate. Our willingness to intervene in the foreign exchange market as necessary was – and remains – an important element in countering the excessive strength of the Swiss franc and the associated negative impact on both the economy and price stability in Switzerland. How are our foreign currency purchases and the Swiss franc exchange rate related to the expansion of the SNB balance sheet? I will explain this using the financial account and current account. The current account covers, first and foremost, goods and services trade with other countries and cross-border income flows. For half a century, the Swiss current account has regularly shown a surplus. 1 There are two main reasons for this structural surplus. First, Switzerland is a net exporter; it produces more goods and services than are demanded in the domestic market. Second, the Swiss hold substantial assets abroad, upon which they earn interest and dividend income. Earnings from foreign trade as well as interest and dividend income from foreign assets are generated abroad and are usually reinvested abroad. These investments are recorded under capital exports by the private sector in the financial account and are shown as red bars in slide 2. Until 2007, private sector capital exports made up almost the entire financial account. 1  2  Jordan, Thomas. 2013.