The ‘risk off' trade is commanding the markets. A subtle, but interesting example is the EURCHF.
For four days the EURCHF has held to 1/8th percent away from the official 1.2000 peg. It sits at 1.2016 as I write.
Wherever you look, from China to Japan, to the USA, and the EU, trouble is brewing. As currencies go, there is no safe haven left. The Yen has benefited (as I anticipated, Link
). There may be more Yen strength ahead as the market turmoil escalates, but I think that the Yen is no longer a safe place to hide.
On the other hand, Switzerland's economy is doing very well, thank you. Its economy is growing and it has low unemployment. Thanks to an artificial exchange rate, (The Peg), it is still maintaining a trade surplus with its poorer neighbors.
There is evidence that money continues to poor into Switzerland. Six month T-bills are now trading at -25%. That the short end of the curve is trading at negative levels is not all that surprising, but the Swiss two-year went negative earlier today:
There is only one thing that can make the 2-year go negative. Demand. Hot money is getting converted into Francs, and then it is pushed forward in the swaps market.
The following is a slide of the EURCHF three and six months swaps.
Note that they are trading at a discount (left side larger than right). To determine the market price for six-month EURCHF, take the bid side (.0026) and subtract it from the current spot rate (1.2016) - that yields 1.1990. This means that the outright six month forward EURCHF is trading below the 1.2000 Central Bank peg.
This slide looks at the one and two-year swap spreads. The implied outright forward EURCHF for one and two years are 1.1957 and 1.1792, respectively.