Swiss franc gains appeal as a carry-trade currency

The franc’s 0% policy rate is pulling it into a trade long associated with Japan. Investors are examining the Swiss currency as a cheaper source of funding while interest rates in other markets remain higher, according to Keystone-SDA in a report published on September 21, 2026.

The carry trade relies on a straightforward calculation. An investor borrows in a currency with a low financing cost, converts the money and buys assets or currencies that offer a higher return. The difference between the borrowing cost and the investment return creates the carry.

Switzerland’s position has changed the market conversation. The SNB’s key rate remains at 0%, while higher rates elsewhere provide the yield incentive. The franc also has a large international swap market, allowing financial institutions to arrange and hedge the borrowing positions required for such strategies.

The opportunity carries a clear currency risk. Investors who borrow francs must eventually buy the currency to repay their loans. If the franc appreciates during the trade, that repayment becomes more expensive. The interest earned abroad may then fail to cover the exchange rate loss, particularly for highly leveraged positions.

The yen’s long reign as the preferred funding currency is under strain. Japan kept monetary policy highly accommodative for years, making the yen a central instrument in global carry trades. Recent Bank of Japan rate increases have narrowed that advantage.

The source report also points to a rare episode of Japanese and US intervention to support the yen. A stronger yen raises the cost of repaying yen loans, which can force investors to sell foreign assets and close positions quickly. That selling can amplify currency moves across markets.

The franc offers an alternative with a different profile. Switzerland has maintained a 0% SNB rate, and its currency is deeply integrated into global derivatives markets. If Japanese rates rise further, some investors could shift financing activity from the yen to the franc.

That shift would spread the strategy across another major currency rather than eliminate its risks. Markets still depend on assumptions about exchange rates, interest rate paths and investor confidence. A trade that appears stable while currencies move gradually can become difficult to unwind once funding costs change or exchange rates move sharply.

The franc’s safe haven status could turn a funding strategy into a rush for repayment. Investors using the franc as a borrowing currency are effectively betting that it will remain stable or weaken against the assets they buy. That assumption can fail during geopolitical crises, market stress or renewed demand for defensive currencies.

The franc traditionally attracts money when investors seek safety. In a shock, holders of foreign assets financed with franc borrowing may close their positions and buy francs to repay loans. Those purchases can push the currency higher, increasing losses for the remaining carry traders and encouraging more forced exits.

This feedback loop matters beyond individual trading books. Large leveraged positions can create concentrated demand for the funding currency during an exit. The experience of the yen shows how quickly a popular carry trade can come under pressure when many participants try to reduce exposure at the same time.

The Swiss currency therefore carries two market identities. It can serve as a low cost financing tool because the SNB rate is 0%. It can also act as a haven during uncertainty, precisely when a weaker funding currency becomes hardest to count on.

Switzerland’s financial system gives the franc the reach needed to become a global funding currency. The report highlights the currency’s internationally significant swap market, where institutions use derivative contracts to exchange interest rate and currency exposures.

That infrastructure supports transactions well beyond Switzerland’s borders. Asset managers, banks and other market participants can borrow francs, convert the proceeds and seek higher returns elsewhere. The strategy can work while the interest differential remains favourable and the franc does not rise materially.

For Switzerland, increased use of the franc in carry trades would add another layer to the currency’s international role. The same currency supports the country’s financial centre, functions as a safe haven and now attracts attention as a low cost source of funding. Each role can influence the others when markets become unsettled.

The immediate trigger for wider adoption would likely be a combination of rates and expectations. Further increases in Japanese rates could reduce the yen’s appeal, while the SNB keeps its rate at 0%. Investors would still need to price the risk that the franc’s defensive reputation brings a sudden appreciation.