| A profitable diversification vehicle The Swiss bond market plays an important role in international asset allocation. Generally, Swiss yields have been well correlated with German yields. On a monthly basis, the correlation between 10-year Swiss and German government bond yields has been 82% in the period from 1987 to 1995. However, the Swiss market continues to exhibit sufficient divergent behaviour for Swiss bonds to be an important and profitable diversification vehicle for international fixed income portfolios, particularly in periods of heightened international risk. In the 1994 bear market, Swiss 10-year government bonds posted the most favourable performance of the major government bond markets in both local currency and dollar terms, underlining Swiss bonds' value as a defensive investment. In 1995, as global inflation expectations fell and bonds rallied, Swiss 10-year government bonds again posted the strongest performance of the major markets in dollar terms, suggesting that the Swiss market could be viewed by international investors as offering more than just a safe-haven. While the Swiss government bond market is modest in size, the inclusion of Swiss bonds in the Salomon Brothers global bond index is a testament to their importance. |