The Swiss city of Lugano has made a bold move in the world of municipal finance, issuing its third CHF 120 million ($139m) digital bond exclusively through the SIX Digital Exchange (SDX). This innovative approach has not only optimized the city's debt management strategy but also paved the way for a new era of cost-effective and technologically advanced financing solutions for local governments.

Unlocking the Power of Digital Bonds for Sustainable Municipal Growth

Pioneering the Digital Bond Landscape

Lugano's journey into the digital bond realm began in 2023 when it became the first non-financial institution to utilize the SDX platform for its inaugural CHF 100 million digital bond issuance. This groundbreaking move was further solidified when the Swiss National Bank (SNB) incorporated the bond into its General Collateral Basket, potentially marking a global first for a central bank to allow the use of digital bonds in its repurchase agreements (repos).

Building on this success, Lugano followed up with another CHF 100 million digital bond issuance earlier this year. The novelty of this second offering was the settlement process, which leveraged the SNB's wholesale Central Bank Digital Currency (wCBDC) – a move that further cemented Lugano's position as a trailblazer in the digital finance landscape.

The city's latest CHF 120 million digital bond issuance, which was met with high demand and issued above par, is a testament to the growing investor confidence in Lugano's innovative approach. This bond, too, will be settled using the SNB's wCBDC, solidifying the city's commitment to embracing cutting-edge financial technologies.

Optimizing Debt Management and Financial Resilience

Lugano's strategic shift towards digital bonds has yielded tangible benefits for the city's financial well-being. By optimizing its debt management strategy, Lugano has secured more cost-effective financing than initially expected, a development that will bolster the city's financial strength in the medium and long term.

The ability to list the digital bonds on both the SDX and the main SIX exchange, coupled with the option to hold them in the SDX digital central securities depository (CSD) or the conventional SIS CSD, has provided Lugano with increased flexibility and accessibility for investors. This multifaceted approach has not only diversified the city's funding sources but also enhanced the overall liquidity of its debt instruments.

As Lugano continues to pioneer the digital bond landscape, the city's financial resilience and ability to support its long-term development goals have been significantly strengthened. This innovative strategy has positioned Lugano as a trailblazer in the municipal finance sector, setting a precedent for other local governments to follow.

Fostering Collaboration and Technological Advancements

Lugano's digital bond initiatives have fostered a collaborative ecosystem, with the city working closely with a team of joint lead managers, including Basler Kantonalbank, Raiffeisen, J. Safra Sarasin, and Zürcher Kantonalbank. This partnership has not only facilitated the successful execution of the bond offerings but also paved the way for further technological advancements in the municipal finance landscape.

The integration of the SNB's wCBDC into the settlement process for Lugano's digital bonds represents a significant milestone in the convergence of traditional finance and emerging digital technologies. This collaboration between the city, the central bank, and the financial institutions involved has the potential to inspire similar initiatives in other regions, driving the adoption of innovative financing solutions across the public sector.

As Lugano continues to push the boundaries of municipal finance, its pioneering efforts have the power to inspire and influence the broader financial ecosystem. By demonstrating the viability and benefits of digital bonds, the city is setting a new standard for local governments seeking to optimize their debt management strategies and unlock the full potential of technological advancements.