How to Invest in Swiss Government Bonds

Swiss government bonds can be used to profit financially from government projects. This guide answers the most important questions about investing in Swiss government bonds.

What is a government bond?

A government bond is a loan agreement in which you as an investor lend money to a government or a government agency. Bonds are securities, and you can buy, sell, and trade them.

A bond has a fixed annual interest rate (the coupon) and a fixed bond term. The government pays out the interest it owes you every year. At the end of the bond term, the government repays the loan in full. 

In Switzerland, government bonds are issued by the federal government and by many cantonal governments. Some Swiss municipal governments issue municipal bonds. 

What is the face value of Swiss government bonds?

The face value of a government bond is the amount that you will receive from the government if you keep the bond until it matures﹘meaning it reaches its expiry date. The interest you earn is based on the face value of the bonds you own.

Bonds issued by the Swiss federal government have a face value of 1000 Swiss francs per bond. The 1000-franc face value is also often used for Swiss cantonal and municipal bonds.

So if a Swiss government bond has an interest rate of 1.50 percent per year, you will receive 15 francs of interest each year that you hold that bond. If you own the bond when it reaches its maturity date, you will receive the bond repayment of 1000 francs.

How much do Swiss government bonds cost?

When you buy Swiss government bonds, you have to pay the market price. The market price may be higher or lower than the bond’s face value.

Banks and online trading platforms quote the prices of Swiss government bonds as a percentage of the bond's face value.

In order to calculate the return of a bond based on the actual market price you pay, you must add the bond’s face value and its total outstanding interest payments, and then subtract the price you would pay for the bond.

How can I invest in Swiss government bonds?

There are two ways to invest in Swiss government bonds as a private investor:

• Buy actual specific Swiss government bonds.
• Buy shares in an exchange-traded fund (ETF) that buys Swiss government bonds.

How can I buy actual Swiss government bonds?

In order to buy Swiss federal, cantonal, or municipal bonds, you need to have a brokerage account at a bank. Banks charge brokerage fees and custody fees to buy, hold, and sell government bonds for you. The fees charged are the same as for other Swiss bonds. The guide to minimizing the cost of buying and holding bonds explains how to keep the bank fees low.

Each Swiss government bond has its own ISIN. You can use this serial number to specify the exact bond you want to buy (in your bank’s online trading platform, for example).

Table 1: Swiss federal government bonds issued since 2021

The interest paid out by the government every year is automatically transferred to your account. When the bond matures at the end of the loan term, the money you lent by buying the bond is automatically repaid into your stock brokerage account.

How can I invest in Swiss government bond ETFs?

Instead of buying bonds yourself, you can buy shares in an ETF that tracks a Swiss government bond index. To do this, you need to have a stock brokerage account. You can find the ETF you want to invest in using its serial number (ISIN).

Brokerage and custody fees for bond investments vary between banks. The interactive online trading comparison on moneyland.ch makes it easy to find the cheapest Swiss bank for your needs.

The advantage of using ETFs, compared to buying actual bonds, is that they invest in all the bond issues behind an index. The disadvantage of using bond ETFs is that they charge ongoing fees in the form of the annual total expense ratio (TER), which detracts from your yields. Additionally, because ETFs regularly buy and sell many different Swiss government bonds, it is very difficult to predict the returns.

Table 2: Swiss government bond ETFs for private investors

*Total returns including capital gains and dividends. Dates for 10-year term: February 1, 2014 to February 1, 2024. Dates for 20-year term: February 1, 2004 to February 1, 2024. Source: JustETF.com

All of the ETFs in Table 2 are domiciled in Switzerland and are denominated in Swiss francs. All of these ETFs use physical replication, which means they actually buy the bonds tracked by the index. These ETFs are distributing funds, which means dividends are paid out instead of being automatically reinvested into the fund.

How can I invest in Swiss cantonal bonds?

Bonds issued by Swiss cantons and municipalities can generally be purchased using Swiss stock brokerage accounts. The brokerage fees and custody fees for Swiss bonds apply. To find the cheapest bank for cantonal bonds, simply select the Swiss Bonds profile in the moneyland.ch online trading comparison.

Table 3: Swiss cantonal bonds (most recent bond issue)

Table 3 only includes bonds that are widely available to private investors. The bonds shown are the most recently-issued bonds as of February, 2024. Depending on the canton, there may be other bond issues with higher interest rates and/or longer bond terms.

How do I invest in municipal bonds?

Municipal bonds are issued by some Swiss municipalities﹘particularly larger cities. Bonds are also issued by some Swiss government agencies and firms, such as municipal public transportation services.

These bonds sometimes have higher interest rates than cantonal bonds. But it is important to note that an investment in just one municipality is less diversified than an investment in a whole canton, and much less diversified than an investment in the entire Swiss confederation.

Are Swiss government bonds a safe investment?

As with all loans, you risk losing the money you lend if the borrower becomes insolvent and cannot repay the loan. Government bonds from countries that control their own currencies are generally considered to be a secure investment. But security varies based on the creditworthiness of the government that issues them.

Bonds issued by the Swiss confederation﹘colloquially referred to as “Eidgenossen” in Switzerland﹘are backed by the creditworthiness of the Swiss federal government. It is impossible to accurately predict how Switzerland will develop politically and economically in the distant future. However, the creditworthiness ratings from major rating agencies provide a reference point for investors looking to invest in Swiss federal, cantonal, and municipal bonds.

The meanings of ratings are explained in the moneyland.ch guide to creditworthiness ratings from major rating agencies.

Table 4: Swiss government: Long-term creditworthiness ratings

The list in table 4 is not comprehensive. Creditworthiness ratings for other Swiss cantons and municipalities may be available from corresponding government offices.

Do I have to keep Swiss government bonds until the maturity date?

No. While you cannot claim repayment of the loan until the end of the bond term, most Swiss government bonds can be bought and sold between investors using a stock brokerage account. This can be beneficial if you find better investment opportunities for your capital.

If you keep a bond until its maturity date, you will get back the full amount you lend. If you sell the bond before it matures, you may get less or in some cases more money than the bond’s face value.

Can I invest in Swiss government bonds using the pillar 3a?

Some pillar 3a asset management services give you the option of using ETFs that invest primarily in Swiss government bonds. Some pillar 3a retirement funds have Swiss government bonds as one of their components.

Does investing in Swiss government bonds make sense?

Well-diversified investments in the Swiss stock market have historically yielded much higher returns than government bonds over long terms. But unlike Swiss government bonds, which are predictable as long as you keep them until maturity, it is impossible to predict the future returns of stock investments.

Bonds issued by the Swiss confederation are considered to be very secure. The chance of the whole country going bankrupt is smaller than the chance of a company (stocks and corporate bonds) or a bank (savings accounts and medium-term notes) going bankrupt. Unlike Swiss companies and banks, governments have the ability to raise money by taxation. Theoretically, they also have the ability to print money with which to meet their debt obligations.

Because of these unique properties, Swiss government bonds can be used as one component to diversify your investment portfolio.

More on this topic:
How to minimize the costs of investing in bonds
The costs of investing in ETFs explained
Fixed deposits and medium-term notes: Investment tips
Swiss medium-term note comparison