Capital markets News

Lugano’s second digital bond to be settled using CBDC


Earlier this week, the City of Lugano issued its second CHF 100 million ($114m) native digital bond. Settlement uses the Swiss franc wholesale CBDC as part of the Project Helvetia III central bank digital currency (CBDC) project. Helvetia is a limited time intitiatve allowing the use of the CBDC through to June 2024.

It follows a year after Lugano’s first CHF 100 million digital bond issuance. In both cases, the bond can be held in the SDX digital central securities depository (CSD) and the SIS conventional one. The ten year 1.415% bond is listed on both the SIX Digital Exchange (SDX) and the main SIX exchange.

Late last year, the wholesale CBDC was used to settle two other SDX digital bond issuances by the Canton of Zurich (CHF 100m) and the City of Basel (CHF 105m). 

The lead managers for the Lugano issuance were Zürcher Kantonalbank (ZKB), Basler Kantonalbank and J. Safra Sarasin. 

Wholesale CBDCs generally restrict access to banks, and given this is a pilot, only those banks that are participants. Certainly, ZKB will settle using the wholesale CBDC and probably Basler Kantonalbank. Given the City is not a CBDC participant, it will receive money in the conventional manner.

Digital bonds in demand

According to ZKB, it closed its order book in just 17 minutes. It received nine orders, with the largest allocation of CHF 8 million, despite an order for a higher amount. Almost half was allocated to asset managers, followed by banks (22.8%), insurers (18.6), pension funds and treasuries.

Lugano’s Mayor Michele Foletti said, “It concretises the City’s orientation of wanting to be a ‘model of innovation’ and to “promote and support digital transformation, technological innovation, development and research, with the aim of being a cutting-edge city.”‘ 

The pace of digital bond issuance is expected to accelerate. This week Hong Kong issued digital green bonds valued at $756 million.