Tuesday 20 March 2018

NTMA reining in liquidity to curb bond short-sellers

bond markets

Dara Doyle and Joe Brennan

THE NTMA has reined in its liquidity facilities for short-dated bonds to clamp down on short-sellers who can push up borrowing costs, according to two people familiar with the confidential restrictions.

The debt-management agency emailed primary dealers to say that, starting this month, it wouldn't provide repurchase facilities for a 4pc bond repayable on November 11.

On August 24, the NTMA said that it was stopping repo facilities for a 3.9pc bond due next March, and that it was scrapping repurchases for all securities with less than 18 months to maturity, the sources said.

NTMA spokesman Ray Gordon declined to comment on the emails.

The agency's website says it provides repurchase facilities to primary dealers so they can "borrow bonds or cash to cover short positions on a secured basis".

Limiting repurchase facilities makes it harder for traders and investors to speculate on a decline in bond prices by selling bonds they don't own in the hope of buying them back at a lower price in the future.

Ireland's two-year borrowing cost is currently about 9.06pc, down from as high as 24pc on July 19 and compared with a six-month average of 11.8pc.

Short end

"The effect is to squeeze further the repo rates on the short end," said Harvinder Sian, a senior fixed-income strategist at Royal Bank of Scotland in London.

"It makes sense to try and differentiate yourself when Greek yields are hitting new highs."

Greek two-year yields reached a record 55pc this week. Primary dealers account for 95pc of the turnover in Irish sovereign bonds, the NTMA said in its annual report.

Separately, the NTMA emailed market participants on July 26 saying it was concerned about an increase in failed bond trades in recent months, according to two other people.

The NTMA said it was reminding participants that it could enforce or cancel trades, said one of the people. (Bloomberg)

Irish Independent

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