“One man's meat is another man’s poison” is an old folk saying that can be applied to many situations in life, and also to the current interest rate landscape. While banks have demonstrably profited from high base rates in the last few months, savers have had to content themselves with much lower income. Interest rates on savings accounts, which are the most popular interest-bearing instrument in Switzerland, may have risen somewhat following the shift in monetary policy, but in many cases they are still below 1%. Investors do not have to be satisfied with these sometimes measly offerings, however: Leonteq has an array of much more profitable solutions. These include the ETP+ on the Leonteq CHF Overnight Return Index that has just come onto the market. The underlying is based on the closely watched reference interest rate for overnight transactions in Swiss francs, the Swiss Average Rate Overnight (SARON).
The Swiss Average Rate Overnight, an overnight rate that is based on the Swiss franc repo market and is used as a short-term refinancing and investment instrument for cash flow management, has recently trended sharply upwards. In the middle of September the interest rate stood at 1.70%, just below the base rate. A year ago SARON was still in negative territory. The Leonteq CHF Overnight Return Index collects the interest of the money market rate, i.e. the index rises by 1/360th of the reference rate each calendar day. The rise in the CHF Overnight Return Index based on SARON is thus about 0.47 base points per day.
The ETP+ on the Leonteq CHF Overnight Return Index gives investors a convenient and low-cost way of earning consistent returns. Since security is always prized highly on the money market, Leonteq also focused on minimising risk when selecting the participation product. The recently launched ETP+ comes with particular collateralisation: a pledge is deposited with SIX SIS AG for every outstanding ETP+. The depositary agent ensures that investors have access to these funds in the event of the issuer becoming insolvent. Measures are also taken to ensure that the pledge is sufficiently large. SIX Repo AG undertakes a daily review and valuation of the securities. This sophisticated process “made in Switzerland” does not come free, but the modest management fee of 0.10% p.a. makes only a marginal difference given the returns listed above.
The high degree of security offered by the product structure is just one of many advantages of the new ETP+ on the Leonteq CHF Overnight Return Index, however. In contrast to many classic money market investments, there is neither a minimum holding period nor a minimum investment amount for this sophisticated investment solution. The issuing price when the product was launched on 15 September was CHF 95.548. The participation paper has nothing to fear from a comparison with a bond investment either. That is because, unlike a classic bond portfolio, the Leonteq CHF Overnight Return Index does not have a duration risk. This is the risk of a change in interest rates, when the price of a bond falls as the corresponding market rate rises – and vice versa. With the innovative “cash collector index” from Leonteq, on the other hand, the interest simply adds up, whether rates rise or fall.
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.