The SNB lately reiterated its stance to maintain a EURCHF floor of 1.20.  In the process, the SNB has amassed billions of foreign currency-denominated assets, about half of which is EUR, and certainly some of dubious quality (some of the recent moves tighter in French yields have been due to Swiss central bank buying, who have been deterred from channelling any further flows into short-term German bonds paying negative yields).

However, the SNB may be showing less commitment to the floor than the rhetoric suggests.  In May, the SNB sterilized almost one half of the CHF it sold into the market.  It did this by a) reducing liquidity from FX (specifically CHF) swaps by $12.5 billion (red line in chart above, positive slope indicates liquidity withdrawal), and by b) by reducing the amount of CHF repos by $18 billion (grey line in chart).  If this continues in to June and beyond this brings in to question the credibility of the SNB’s claim that will hold the floor “with the utmost determination”.  This adds fuel to our view that the floor will ultimately crack.