Major clearing house reduces collateral limit for Irish bonds
Published 07/12/2010 | 05:00
LCH Clearnet -- the second biggest clearing house for bonds in the world -- has reduced the amount of collateral it requires from investors that want to trade in Irish government debt.
The amount of collateral required has been reduced from 45pc of the value of bonds traded to 30pc.
LCH Clearnet is a clearing house for securities, including government bonds.
It acts as a middle-man when investors trade bonds between them and holds a cash deposit while bond deals are in place to protect it from losses if deals go wrong.
The deposit is usually 3pc but was increased to a whopping 45pc for Ireland last month. Yesterday, the cash deposit required for deals done with Irish bonds was decreased by one-third.
It came after the difference between the cost of borrowing for Ireland and Germany fell in recent days.
The difference in the yield, or interest, on Irish and German bonds is a key measure of risk perception.
When it reached record levels last month, LCH Clearnet demanded an extra cash margin, or deposit, for deals featuring Irish bonds.
The margin was increased three times in just under three weeks. It was raised by 15pc on November 10 and raised to 30pc a week later before hitting 45pc on November 25.