By Samuel Indyk

LONDON (Reuters) -The Swiss franc hasn’t lived as much as its safe-haven repute in the course of the Credit score Suisse collapse, as buyers have sought shelter elsewhere, bringing extra of a lift to the worth of the gold in Switzerland’s bullion vaults than to its foreign money.

Cash managers ditched the Swiss franc on the quickest charge in two years final week within the run-up to the dramatic takeover of Credit score Suisse by UBS.

The , usually used as a refuge in instances of market stress or volatility, misplaced 0.9% in opposition to the greenback within the week after the Swiss finance division stated regulators had been intently monitoring the state of affairs at Credit score Suisse on March 13.

In that very same time, Japan’s yen, which can also be seen as a refuge in instances of tumult, rose 2.6% in opposition to the greenback. Since troubles emerged at Silicon Valley Financial institution on March 9, the yen has gained over 5.5% in opposition to the greenback.

Gold, one other conventional secure haven, rose over 5% within the week after March 13 to above $2,000 an oz., its highest in over a yr, whereas authorities bonds noticed a few of their largest inflows in a long time.

“It positively is to do with developments within the banking sector,” stated Kirstine Kundby-Nielsen, FX analyst at Danske Financial institution, on why the franc wasn’t stronger.

“You continue to have a number of the safe-haven hedging properties within the Swiss franc however it could actually solely take a lot when the chance finally ends up being so concentrated within the Swiss financial system and the Swiss monetary sector,” Kundby-Nielsen added.

Speculators added over $800 million to their bearish positions on the Swiss franc within the week to March 21, in line with knowledge from the Commodities Futures Buying and selling Fee, essentially the most in a single week since early March 2021.

On Sunday, the Swiss Nationwide Financial institution (SNB) orchestrated a $3 billion deal for UBS to purchase rival Credit score Suisse, backed by an enormous assure of as much as $260 billion, a 3rd of the nation’s nationwide output, in state and central financial institution assist.

“If it hadn’t been Credit score Suisse, however another European financial institution moving into bother, you’d have seen the Swiss franc rising sharply as a result of it could have been the secure haven for European danger,” stated Francesco Pesole, FX strategist at ING.

Analysis from the SNB in 2016 discovered that in earlier crises, flows into Switzerland and the franc had been pushed by weaknesses elsewhere.

Futures knowledge reveals speculators poured cash into bullish bets on the Swissie after the dot-com bubble burst in early 2000, after the 9/11 assaults in 2001, and once more in 2008 and 2011-2012, in the course of the euro zone debt disaster and as soon as extra in the course of the COVID disaster.

Throughout the collapse of Lehman Brothers in 2008, internet inflows had been pushed by a “substantial retrenchment” into the home market by Swiss banks, whereas within the euro space banking disaster from mid-2011, the SNB discovered that strikes away from the euro and into the franc had been pushed by international banks shifting belongings from the euro space branches into their Swiss branches.

“The present setup does not argue for both of these issues. U.S. financial institution stresses have been contained in regional banks and euro space banks have up to now been comparatively unscathed,” stated Michael Cahill, senior FX strategist at Goldman Sachs (NYSE:).

“The franc is just not an ‘all-weather’ secure haven and up to now we have not had the kind of market pressures that will sometimes result in franc appreciation,” he stated.

Switzerland’s lengthy historical past of political neutrality however energetic integration into the worldwide financial system additionally helps the nation present a shelter throughout instances of heightened geopolitical tensions.

This development was noticed in February final yr when the franc gained 5% in opposition to the euro within the two weeks after Russia invaded Ukraine.

SWISS FRANC STILL A HAVEN

It is one factor for the franc to have misplaced some favour amongst buyers throughout a Swiss-centric disaster, however fairly one other to recommend its days as a secure haven are numbered.

For the Swiss franc to lose its standing as a secure haven, FX strategists at Barclays (LON:) say “basic adjustments” within the nation’s stability sheet could be required, with the share of Swiss-issued belongings in exterior liabilities required to fall by way of “massive and sustained” outflows.

“This could result in a rise in home rates of interest, thereby rising the yield Switzerland’s exterior liabilities pay and additional weighing on the nation’s yield differential,” Barclays FX strategists, led by Lefteris Farmakis, stated.

“In such a situation, the SNB would probably try and easy out the transition by cushioning capital outflows,” Farmakis stated.

Barclays stated the percentages of a “sudden cease” episode are extraordinarily low regardless of the present banking turmoil, however a tougher query to reply is whether or not confidence within the monetary system has been eroded to a level {that a} “sluggish burn” episode could have began.

“Fortuitously,” Barclays says, “this situation has restricted repercussions for the franc over the foreseeable future.”