LCH/Repoclear Lowers Margin Requirement On Irish Bonds From 45% to 30%

Tyler Durden's picture

In another superficial attempt to demonstrate that things are stabilizing in the European bond market, LCH Clearnet has just lowered margins on Irish bonds to 30% from the 45% it had raised margins to on November 25. Presumably all it takes for a clearer to get confidence back in a given market is just a few billion in purchases by a given central bank. Perhaps instead of being concerned with a few short sellers distorting the market, LCH should actually consider what would happen to its entire clearing market in European bonds should the ECB bid be pulled. Of course, fudging with margins is so much easier to pretend control over the situation than to really go to the heart of the key destabilizing factor...

Just released from LCH.Clearnet:

  1. In accordance with the Sovereign Risk Framework issued on 5
    October 2010, and in response to the yield differential of 10 year Irish
    government debt against a AAA benchmark, LCH.Clearnet Ltd has revised
    the risk parameters for Irish government bonds cleared through the
    RepoClear service.  The additional margin required for positions of
    Irish government bonds will consequently be reduced to 30% of net
    positions over the standard margin rate.

  2. This will also apply to Irish government bond exposures in the single 'A' €GC basket.

  3. This
    decision is based solely on publicly available yield spread data and in
    no way represents a forward looking market view. LCH.Clearnet will
    continue to monitor yield spreads closely and keep the parameters under
    close review in accordance with the Sovereign Risk Framework issued on 5
    October 2010.

  4. The additional margin will be calculated on net exposure at close of business on Monday 6 December 2010 and will be reflected in a margin call/repayment on Tuesday 7 December2010.

Recall that just two weeks ago Repoclear hiked the margin to 45% in a failed attempt to stabilize prices:

  1. In accordance with the Sovereign Risk Framework issued on 5 October 2010, and in response to the yield differential of 10 year Irish government debt against a AAA benchmark, LCH.Clearnet Ltd has revised the risk parameters for Irish government bonds cleared through the RepoClear service.  The margin required for positions of Irish government bonds will consequently be an additional 45% of net positions over the standard margin rate.
  2. This will also apply to Irish government bond exposures in the single 'A' €GC basket.
  3. This decision is based solely on publicly available yield spread data and in no way represents a forward looking market view.  LCH.Clearnet will continue to monitor yield spreads closely and keep the parameters under close review in accordance with the Sovereign Risk Framework issued on 5 October 2010.
  4. The additional margin will be charged on net exposure at close of business on Thursday 25 November 2010 and will be reflected in a margin call on Friday 26 November 2010.