Swiss Franc Yield Curve Negative for 12 Years; Bond Crash - Austrian Bank Raiffeisen; Another One Bites the Dust

The casualties continue to pile up in the wake of the Swiss National Bank dropping its peg to the euro.

(See Rabbit Hole Intervention Fails: Wild Moves in Swiss Franc as Switzerland Abandons Euro Peg; Morals of the Story).

The first moral of the story was "Don't borrow money in other currencies, especially long-term mortgages."

The same applies to lenders. And banks that lent money in unhedged Swiss francs to customers in Poland, Hungary or elsewhere now finds collection difficult.

Austrian bank Raiffeisen is in deep trouble doing just that.

Austrian Bank Raiffeisen's Bonds Crash

Bloomberg reports Raiffeisen Debt Signaling Distress as Currency Woes Mount

Raiffeisen Bank International AG (RBI)’s junior bonds slumped to levels typically viewed as distressed after gains in the Swiss franc added to woes triggered by the tumble in the Russian and Ukrainian currencies.

Subordinated bonds sold by the Vienna-based lender slid as low as 63.4 cents on the euro, with yields of as much as 10 percent, after trading at 91 cents at the start of December, according to data compiled by Bloomberg.

Investors are concerned because European Union rules forcing losses on junior bondholders before banks can get state aid came into force in Austria on Jan. 1. The government has injected about 8.1 billion euros into three banks in the past six years and guarantees on bonds of stricken Hypo Alpe Adria Bank were revoked to avoid a taxpayer-funded bailout.

Raiffeisen had a total of 4.3 billion euros of Swiss franc loans outstanding as of September 2014, according to estimates by Moody’s Investors Service. The largest part of these are in Poland, where the franc has appreciated 17 percent against the zloty since Jan. 14, threatening to push up defaults on the bank’s 2.9 billion euros of mortgages in the Swiss currency.

1. Don't borrow (or lend) money in other currencies, especially long-term mortgages.
2. Don't expect currency interventions to work forever.
3. Don't believe statements made by central bankers. They are not the economic wizards they are made out to be, and they often lie when it suits their purpose.
4. It only takes one wrong macro bet with leverage to make a fortune or wipe you out.
5. When you are speculating with other people's money, especially when you take in a 20% performance fee, there is a huge incentive to make leveraged bets.