By Caitlin Ostroff 

Switzerland's bond yields have shot higher than those of Germany for the first time in years, causing the financial haven to lose its long-held position as the economy with the world's lowest borrowing costs.

Yields on Swiss government bonds are still in negative territory but have risen sharply in recent weeks, as the Swiss National Bank's response to the coronavirus pandemic has been less aggressive than efforts by the European Central Bank and the U.S. Federal Reserve. Investors are paying up for eurozone government bonds in particular, thanks to bond-buying programs the ECB has introduced that the SNB hasn't.

Two-year and 10-year Swiss bond yields have risen higher than those on rival German bonds for the first time in more than a decade. A 10-year Swiss government bond yields minus 0.27%, compared with minus 0.97% on March 9. That is now 0.10 percentage point higher than comparable German bonds, which sport the lowest yields among major economies. Japanese yields were the world's lowest for a time in 2018.

The yield on the 10-year U.S. Treasury note settled Tuesday at 0.735%, up from 0.675% Monday. Yields, which rise when bond prices fall, have climbed for two sessions in a row, reflecting a shift among investors toward riskier assets such as stocks.

The increase in yields in Switzerland is attracting demand for the Swiss franc, causing it to rise to its highest level against the euro since July 2015. It fell slightly on Tuesday, but remains near recent highs, with EUR1 buying 1.05 Swiss francs.

To prevent the franc from rising too quickly and causing damage to the export-dependent Swiss economy, the SNB appears to have stepped up its weekly interventions in the currency markets. The past two weeks saw an 18 billion Swiss franc ($18.4 billion) increase in the SNB's so-called sight deposits, a proxy that analysts use to measure currency intervention. That was the biggest jump since January 2015.

At its March meeting, the Swiss National Bank said it was intervening in the foreign-exchange market after coronavirus fears had sent the franc up to become "more highly valued."

Complicating Switzerland's position are complaints from the Trump administration about how it manages its currency. In January, Washington added Switzerland to its watch list of potential currency manipulators.

Some think Switzerland isn't acting more aggressively than it otherwise would.

"Normally you want a weaker exchange rate because it leads to more exports, but nobody is buying" those exports right now, said Steven Englander, head of global G-10 FX research and North America macro strategy at Standard Chartered. "Had we been at these levels six months ago, they probably would have been much more concerned."

The SNB has long acted to keep the Swiss franc from becoming too highly valued. With already deeply negative rates, currency intervention is its most effective tool to stem the rise as investors seek safe assets.

It isn't clear if the differences in bond yields will prompt further action from the SNB. The bank abandoned a currency cap it maintained against the euro in 2015, allowing the franc to shoot higher suddenly, whipsawing global markets.

Given the wider mayhem in currency markets, the franc's trading against the euro has been "remarkably stable" in recent weeks thanks to the SNB's interventions, said Karsten Linowsky, head of foreign exchange and rates strategy at Credit Suisse.

It is hard to pin down how aggressively the SNB is being. "My hunch is they are very active in the market, but it's impossible to say," said David Oxley, senior Europe economist at Capital Economics. The SNB's weekly report on sight deposits is usually a decent intervention proxy but the data are likely obscured by SNB-led incentives for banks to lend to struggling businesses during the national coronavirus lockdown.

Write to Caitlin Ostroff at caitlin.ostroff@wsj.com

(END) Dow Jones Newswires

April 07, 2020 16:19 ET (20:19 GMT)