Swiss Bond Index Explained: Rules, Ratings, and Sub-Indices

A bond index tracks the performance of a representative portfolio of bonds. This provides investors with a benchmark against which they can gauge the performance of their own investments. The Swiss Bond Index (SBI) is the broadest bond benchmark provided by SIX and depicts the development of the bond market in Swiss francs. It serves as the basis for all other bond indices from SIX, and all sub-indices are derived from the SBI. As a benchmark, it provides important information about domestic interest rates, and thus about the Swiss capital market overall.

Not every bond traded in Switzerland gets accepted into the SBI. In order for a bond to be accepted as an index component, it has to meet clearly defined approval criteria:

• Listing: The bond must be listed on the SIX Swiss Exchange.
• Currency: Only bonds in Swiss francs are permitted.
• Minimum Volume: The nominal volume must amount to at least 100 million francs.
• Coupon Structure: In principle, only bonds with a fixed coupon or similar characteristic are considered.
• Term to Maturity: The residual term must be a year or longer. Perpetual bonds, i.e. bonds with indeterminate terms, are not permitted.
• Minimum Rating: Every bond requires an SBI Composite Rating of at least BBB (see below).

Bonds that no longer meet these requirements are removed from the index at the next monthly review cycle. In so doing, the SBI consistently provides an up-to-date representation of the investable market.  

The SBI Composite Rating is a rules-based datapoint that SIX issues for every bond. However, it is not an independent credit rating. SIX, itself, does not issue credit ratings and also does not assess the creditworthiness of an issuer or an issuance. Instead, SIX determines the SBI Composite Rating by taking the median of several external ratings and uses it to classify the bonds. Rating agencies grade the creditworthiness of a bond issuer based on an alphabetic scale, normally ranging from AAA (highest level of creditworthiness, minimal default risk) to D (default). The borderline between secure and speculative bonds sits at BBB-: Everything from BBB upward is considered investable from a customer perspective, while bonds rated BB or worse are rated as high-risk.

Bonds below an SBI Composite Rating of BBB are excluded from the index.

This procedure ensures that the SBI contains only those bonds with a low risk of default. This is an important sign of quality for institutional investors who use the index as a benchmark or as the basis for investment products.

The true strength of the SBI methodology lies in its flexibility in measuring different market segments. By applying filters across the broad SBI, an entire family of specific sub-indices is created. SIX provides a total of six filters that can be combined independent of one another:

SBI Composite Rating: Classification according to creditworthiness level allows investors to make targeted investments only in those bonds with the highest credit rating (AAA), or across the entire investment-grade spectrum (AAA-BBB), depending their own risk appetite and regulatory requirements.

Sector Classification: SIX uses its own bond taxonomy to classify the bonds in the SBI universe based on the type of collateral securing a bond and/or the issuer’s business activities. It is divided into three levels. For example, the first level is divided into public sector bonds, secured bonds, and corporate bonds. The subsequent levels make additional subdivisions, thus facilitating precise allocation decisions. This applies, for instance, to institutional investors who are under regulatory obligation to hold a certain proportion of public sector bonds.

• Domicile: Investors wishing to invest exclusively in domestic issuers from Switzerland or Liechtenstein can make targeted use of this filter to manage the “Home Market Exposure” of their portfolio and exclude foreign issuers.
• Nominal Volumes: Higher minimum volumes ensure better tradability and liquidity among index components. This is a key criterion for institutional investors who are tasked with expanding or reducing large positions without impacting the market.
• Remaining Term: Maturity terms are especially relevant for what is known as Duration Management: Short-term bonds (1–3 years) are less sensitive to interest rate changes than long-term bonds (10+ years). This can be a deciding factor during phases of volatile interest rate markets.
• ESG Attributes: Issuers that do not meet the sustainability criteria are excluded.

This filtering logic turns the SBI into a modular toolkit: A single index gives rise to an entire ecosystem of tailored benchmarks for a range of investment strategies and risk profiles. Each bond index is calculated as a price and total return variant. The price variant shows the pure price performance. The Total Return variant takes into account additional coupon payments, i.e. the regular interest payments of a bond. In addition, SIX calculates Yield, Duration, Spread to Government and Spread to Swap. Yield indicates the return earned on a bond. Duration shows how sharply a bond reacts to interest rate changes. Spread to Government measures the yield spread relative to government bonds. Spread to Swap measures the yield spread relative to the swap rate. All metrics are based on the same index composition, i.e. the same bonds in the index. The bonds are weighted by market value in the index calculation. This is determined by multiplying a bond’s nominal value by its bid price.

For investors such as pension funds, the key figure Duration plays a particularly important role, for example in hedging against future payment obligations with an appropriate bond portfolio. SIX also offers the ability to calculate bond indices in line with customer-defined specifications. In addition to the six filter criteria given above, a customer’s own data can be integrated into the selection process.

With the SBI ESG indices, SIX has directly integrated the sustainability dimension into the index methodology. Inrate evaluates and ranks issuers by using a variety of data points. Exclusion recommendations from SVVK-ASIR (Swiss Association for Responsible Investments) are also incorporated.

The ESG filter excludes issuers that exceed defined revenue thresholds in critical sectors such as the production of fossil fuels, power generation with high levels of greenhouse gases, or involvement with controversial weapons. Breaches of OECD principles or the UN Global Compact can also lead to exclusion. In contrast to the traditional SBI, the SBI ESG indices have been adjusted more often in recent years to reflect the latest regulatory developments. 

A key principle of the SBI methodology is stability through clearly scheduled processes. SIX makes changes to the index composition on a monthly basis. On the first trading day of the month, the adjustments take effect – after having been announced by the 20^th of the previous month. This notice period allows institutional investors time to adjust their strategy or portfolio.

Besides performance measurement and economic analyses, the SBI is primarily used in Asset Management. Index funds, exchange-traded funds, and mandates replicate the respective SBI variant. Swiss pension funds are generally the end customers, but the product is available to private individuals as well.

Furthermore, the SBI is often used as a basis universe in active portfolio management for additional portfolio selection. Bonds outside of this universe cannot be incorporated by the portfolio manager.

The largest issuers for bonds denominated in Swiss francs in the SBI are traditionally the two Swiss mortgage bond banks and the Swiss federal government, which together carry a 40% weighting. 

Maintenance and development of the SBI rests with the SIX index team, supported by the bond index commission. This body meets at least twice annually and provides market input for rule changes and new products.

Material changes to regulations are announced publicly three months prior to adoption, and as a rule introduced in line with the monthly review cycle in order to avoid any unnecessary market impacts. For significant potential rule changes, market consultations with customers and other stakeholders are planned. You can register for the Indices Newsletter Swiss Bond Indices on the website of SIX.