Insights 
VT 
The chairman of the Swiss National Bank (SNB), Martin Schlegel, stated that the possibility of reintroducing negative interest rates has not been dismissed. He acknowledged that negative rates are generally unpopular, but emphasised that the SNB is ready to implement them if needed.
Schlegel also mentioned expectations for a decrease in Swiss inflation. The implication of these remarks suggests a potential move towards negative interest rates by the SNB.
The Central Bank’s Strategy
Schlegel’s remarks, while measured, offer a clear signal about how the SNB may respond if inflation does not settle near its target in the near term. From our perspective, the phrase “ready to implement” goes beyond posturing—it lays a technical and psychological foundation for investors to begin modelling future rate scenarios that include negative territory. We would note that such forward guidance, though carefully worded, tends to have a tangible effect on forward rate pricing and optionality skew.
What this tells us, in simple terms, is that the central bank is not looking to surprise the market with abrupt decisions, but would prefer tightening or easing to occur via expectations. That said, there’s a strong argument that Swiss policymakers are signalling flexibility in order to retain control over the franc, especially should global disinflationary trends strengthen. While inflation in Switzerland has remained relatively subdued compared with European peers, the readiness to act pre-emptively shows a bias towards stability over higher core returns.
Given this positioning, we are likely to see increased pricing of optionality around the zero lower bound in Swiss rate derivatives. Euro-Franc cross-currency basis spreads may begin to reflect a mild premium for downside protection. That sort of movement—if observed in the coming sessions—could be interpreted as dealers trying to reduce exposure to a steeper front-end cut curve.
We should point out that talk of pushing rates below zero again, even nominally, will not sit well with all investors. However, what matters more right now is not whether the policy is well-liked, but that it is part of the SNB’s viable toolkit. With that in mind, short-dated vols in CHF-linked contracts warrant a closer look, as they are priced quite benignly at present which may not fully reflect tail risks introduced by Schlegel’s comments.
Potential Market Impact
In practical terms, those managing CHF interest rate structures may need to reassess existing flatteners. There’s a non-negligible combination of event risk linked to both the SNB’s upcoming meetings and external rate paths, particularly from the ECB. It’s also worth noting that when central bankers float policy shifts in interviews or panel discussions rather than official minutes, it’s often a soft form of forward guidance. That means it should be weighted accordingly in our models.
Positioning shifts may occur quietly at first. We’ve already seen similar prior episodes when forward guidance alone triggered repricing without any actual change in policy. As rate curves adjust, and as long as inflation expectations remain anchored, the return of negative policy rates—even if only modestly discussed—should push attention to hedging against downward yield surprises.
We’d be remiss not to evaluate whether carry trades involving Swiss instruments are still offering favourable asymmetry. With Schlegel describing negative rates as still “on the table,” a number of FX-linked expressions may begin to tilt towards defensive positioning. Watch two-year OIS differentials in particular.
All of this, taken together, suggests that an active reassessment of low-rate sensitivity may be prudent. Not because we expect an immediate decision, but because the cost of protection now versus potential repricing later creates a fairly explainable incentive to start buying optionality early. Even subtle changes in tone from officials have a tendency to cascade through the rate space in a slow but relentless way.
