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Switzerland holds a globally unique fiscal and monetary position. During periods of international uncertainty, Swiss government bonds are recently frequently driven into negative yield territory. Historical examples include the Eurozone crisis, the beginnings of the US-China Trade War in 2019, COVID-19, and "Orange Monday" during the Trump administration in April 2025. In each of these cases, investors sought safe-haven assets, pushing Swiss yields below zero and signaling strong global demand for Swiss debt.

Despite this recurring phenomenon, the Swiss Confederation has rarely taken advantage of these opportunities to preemptively finance long-term investments. This proposal outlines the structure of a yield-triggered public investment fund designed to operate only during rare episodes of negative long-term bond yields. Crucially, it preserves Switzerland’s fiscal principles, including compliance with the debt brake, by isolating both the borrowing and investment mechanisms from the regular budget.

However, while the idea is technically sound and fiscally conservative, implementing such a fund reveals a series of deeper structural challenges that must be acknowledged. These challenges do not invalidate the concept — rather, they reframe it as a long-horizon institutional option rather than an always-on policy tool.

Structural Limitations of the Concept

Rarity and Instability of Negative Yields

Negative interest rates and negative-yield bonds are not a recurring feature of sovereign finance — they are a recent anomaly. Prior to the 2010s, negative yields did not exist in advanced economies. Their emergence followed extraordinary monetary policy responses to crisis conditions. Since 2022, the global trend has reversed, with long-term rates rising above zero, only to have recently returned under the Trump administration.

Thus, there is no reliable expectation that negative yields — especially on 10- to 50-year bonds — will return. Designing a fund around such a condition means it may never activate in practice. The framework must therefore be treated as a rare structural option, not a conventional policy lever.

Market Absorption Risk

Even if negative long-term yields reappear, the volume of capital markets willing to absorb issuance at these rates is highly uncertain. Historically, most negative-yielding debt was concentrated in the short end of the curve (1–5 years). Long-term issuance at negative yields was limited in both duration and depth.

This creates a significant risk: the fund could be activated, but the volume of long-term negative-yield issuance that markets are willing to absorb may be insufficient. If only a modest amount can be borrowed under these conditions, the fund may be unable to finance meaningful one-time public investments with high social returns and a clear path to principal repayment. The intended focus of the fund is not on recurring expenditure but on large-scale, transformative investments — and if the necessary scale cannot be achieved, the mechanism may be rendered ineffective.

Risk of Principal Erosion Due to Negative Interest Rates

Negative interest rates, which often accompany negative yields, introduce a hidden fiscal cost. If the fund borrows CHF 1 billion but is unable to disburse the funds quickly — due to project lead times, planning delays, or referenda — idle balances could be subject to negative deposit rates.

For example, during the SNB's negative rate period (2015–2022), holding CHF 1 billion at -0.75% for 7.66 years would have resulted in a cumulative loss of CHF 57.45 million — a 5.7% erosion of principal with no offsetting investment. This undermines the fund’s core promise: that unused capital can be held risk-free and repaid in full.

While public entities like the Confederation often enjoyed generous thresholds before paying negative rates, these exemptions are discretionary and policy-contingent. There is no guarantee the SNB would exempt a future fund from such charges. Even foreign bond purchases, while a potential hedge, would introduce foreign exchange risk and raise concerns about monetary independence and political optics.

Timeframe and ROI Mismatch

The types of projects the fund is meant to support — socially transformative, high-ROI infrastructure — often take decades to complete and to yield returns. This creates a mismatch with most negative-yield windows, which are short-lived and primarily affect bonds with 1–9 year maturities.

Borrowing at short maturities to finance long-term projects is fiscally unsound. And attempting to find projects that both deliver high social returns and repay their principal in under a decade is unrealistic. Smaller, rapid-turnover projects may exist, but they would not justify the governance, legal, and operational structure of a national investment fund.

The Case for a Structural Option — Not a Policy Engine

These challenges do not negate the value of the proposal. Rather, they reframe it. Indeed, given these structural constraints, it may be more accurate to describe the mechanism not as a "fund," but as a contingency borrowing framework — a limited-purpose fiscal instrument triggered under rare macro-financial conditions.

Moreover, while it may be argued that initiating large-scale public borrowing would itself push yields higher, this concern is partially mitigated by the structure proposed here: the government would not need to borrow directly through the regular budget. Instead, it could access pre-raised capital under strict conditions, assuming the project meets the defined criteria. However, such an approach is only viable if the mechanism is permanent — without a constant structure in place, this capital cannot be accumulated opportunistically.

It is also important to clarify that the term "infrastructure" is used broadly in this context. It encompasses not only traditional projects like roads or bridges but also any large-scale, one-time public investment with clear social returns and long-term value creation. The defining criteria are not the sector or type, but the combination of public benefit, one-off investment nature, and principal repayment capacity.

The framework must also account for the indirect market effects of its own existence. If announced, the mechanism could, over time, exert upward pressure on yields as investors anticipate future issuance during crisis periods. Paradoxically, this could make negative-yield conditions even less likely. However, this effect may be offset by future global crises, in which demand for Swiss debt as a safe-haven asset again drives yields below zero. In this respect, the more fragile the global macro environment, the more relevant such a contingency mechanism becomes. While the fund may never activate, its underlying design principles remain sound — and worth preserving in the event of a qualifying macroeconomic environment.

Should the fund ever activate, its operation would be guided by several core safeguards: capital would only be disbursed for one-time public investments with a measurable social benefit and a realistic path to repaying the principal. No recurring expenditures would be eligible. Projects would be evaluated not just by aggregate return, but by per capita social benefit, ensuring resources are allocated where impact is broad and meaningful.

Additionally, a capitalized interest buffer would be pre-funded at the time of issuance using any premium gained from negative-yield issuance. This buffer would ensure that all debt servicing obligations could be met, even if no investments were ultimately made — thereby preserving the integrity of the debt brake and shielding the general budget from risk.

The fund should be designed as a rules-based institutional option — ready to activate when rare alignment occurs:

  • Long-term Swiss government yields fall to zero or below
  • Markets demonstrate capacity to absorb multi-billion-franc issuance
  • The government has a vetted pipeline of high-return public investments

If these conditions are not met, the fund remains dormant. If they are, Switzerland can move swiftly, transparently, and debt-neutrally to transform market dysfunction into public value.

Such a fund is less a stimulus tool than a form of macro-fiscal readiness — a countercyclical mechanism for once-in-a-generation opportunities.

Conclusion

This proposal is not a call to spend. It is a call to prepare.

Switzerland’s unique position as a global safe haven creates rare opportunities to borrow at zero or negative rates. But these windows are unpredictable, short-lived, and difficult to scale. Unless a permanent, rules-based structure exists in advance, the government will always be too slow to act — constrained by institutional inertia, planning delays, and democratic process.

By establishing a clear, limited-purpose fund — one that only activates under strict macro-financial conditions — Switzerland can turn rare monetary distortions into long-term public benefit. Even if the fund never activates, its existence imposes discipline, foresight, and resilience.

And if the stars align again, Switzerland will be ready.

-Yannic