Thursday 25 May 2017

LCH doubles Irish bond margin payments

European clearing house LCH Clearnet doubled the extra margin requirement it charges for Irish bond trading to 30pc of net positions as European finance ministers discussed aid to the indebted nation.

The increase will be based on outstanding positions at the close of business tomorrow and reflected in a so-called margin call on November 19, LCH Clearnet said in a statement on its website today.

The change applies to Irish government bond repurchase agreements cleared through its RepoClear service, it said.

LCH boosted the margin requirement after the yield on Irish 10-year government bonds stayed “consistently” at more than 500 basis points above a AAA benchmark, it said.

The securities fell today, erasing earlier gains, sending the yield three basis points higher to 8.50pc as of 8:45am in London.

“We are not making any judgment on Irish creditworthiness, this decision is based solely on government bond-spread data,” John Burke, head of fixed income at LCH, said today in an interview.

There is no limit to potential extra margin charge, and while the company will continue to monitor the market, there are no current plans to increase it further, he said.

European finance ministers have started work on possible aid for debt-laden Irish banks, stopping short of an immediate bailout package. The Government said it doesn’t need EU money.

Clearing houses such as LCH guarantee investors’ trades are completed by standing in the middle of two counterparties, and raise margin requirements to protect themselves against losses should one side of the trade fail.

The company on November 10 said it would impose an extra 15pc margin requirement on investors’ net positions in Irish debt.

The difference in yield, or spread, between Irish 10-year debt and the AAA euro-region benchmark used by LCH widened three basis points to 540 basis points today.

Bloomberg

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