Registered: Mar 2008
05-31-12 02:19 PM
Quote from dhpar:
taxing capital is nothing i worry about for this trade as it decreases demand (not increases) and therefore push yields higher...
btw the thing you mention in 70s was done to avoid appreciation of CHF from external inflows i believe, i.e. taxed at FX level - not taxing the bonds. the flows into German bonds are largely internal (for the time being LOL) so it is a bit different.
If they tax non resident bank deposits it effectively creates a negative interest rate for non residents holding cash in Swiss banks. To avoid this but stay in the safe haven (CHF) instead of EUR, say, you could instead hold a Swiss bond and not be taxed in your bank account. So demand would increase further for Swiss bonds for all those non residents that have currently parked cash in Swiss bank accounts.
The tax effectively creates a negative interest rate (-10%/qtr -> -40% annualized) and this would drive repo rates lower I guess, and so then you could still get positive carry holding Swiss bonds at -0.20%, say, if you're repo funding cost is below -0.20% or you might not mind if you are Greek and more worried about losing your shirt in devalued Euros.
Of course we're entering new territory here so not sure how it will all pan out, but I think there could be real carnage for bond shorts in this scenario. I don't think the Swiss will actually tax bank deposits at 10% a quarter but they might do if SNB is struggling to keep EUR.CHF above 1.20.