The reference interest rate for overnight transactions in Switzerland, the Swiss Average Rate Overnight (SARON), has climbed above the 1.7% mark. The corresponding reference rates in the Euro area, the Euro Short-Term Rate (ESTR), and in the United States, the Secured Overnight Financing Rate (SOFR), are now 3.6%, respectively 5.3%. Reference rates have awakened from years of lethargy with the turnaround in monetary policy. Leonteq is now using the much-noted reference rates to build a new underlying: the Leonteq Overnight Return Index. This benchmark "accumulates" the interest rate of the SARON, the ESTR and the US-SOFR, respectively. Specifically, the Overnight Return Index increases by 1/360 of the reference rate per calendar day. Currently, the daily increase of the Leonteq CHF Overnight Return Index is around 0.48 basis points, the Leonteq EUR Overnight Return Index increases about 1 basis point, while the Leonteq USD Overnight Return Index rises around 1.4 basis points.
The idea behind this formula is to generate a steady return on CHF, EUR or USD cash holdings. The Leonteq Overnight Return Index can be invested in with the help of an ETP+. The SIX and BX listed products track this specific underlying without any maturity restrictions. Investors can thus generate an attractive return on their CHF, EUR and USD cash holdings. They do not have to adhere to a minimum holding period as with traditional fixed-term deposits.
Of course, security plays an important role, especially with this type of investment. Leonteq is the first ETP provider in Switzerland to be licensed and supervised by FINMA as a securities firm. In addition, the company has a capital base of around CHF 880 million (as of the first half of 2023). In addition, there is a special collateralization: For each ETP+, a pledge is deposited with SIX SIS AG. The custodian ensures that investors can access these funds if the issuer becomes insolvent. At the same time, it is guaranteed that the pledge is sufficiently large: for this purpose, SIX Repo AG carries out a daily review and valuation of the collateral. Of course, this process entails costs. The management fee for the ETP+ on the Leonteq CHF, EURO and USD Overnight Return Index is 0.10% p.a.. This fee is at the expense of the ongoing cash return. Nevertheless, the current yield of around 1.40% p.a. in Swiss Francs, 3.30% p.a. in Euros and 5.00% p.a. in US Dollars do not need to fear comparison with daily callable money market investments.
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.