Portuguese Bond Liquidity Disappears As LCH.Clearnet Kicks Portugal Paper Out From RepoClear Basket Eligibility

Tyler Durden's picture

And another major hit for all those still unlucky enough to own Portuguese bonds: From LCH.Clearnet:

Following S&P's lowering of its sovereign credit ratings on Portugal to BBB on Friday 25 March 2011, RepoClear participants are advised that with effect from Monday 27 March 2011 Portuguese Government bonds will no longer be eligible for delivery in any of the RepoClear €GC Baskets.

Until today’s downgrade Portugal had been eligible for the single A €GC Basket.

This is in line with LCH.Clearnet Ltd’s Regulations*, which state that while the criteria which define each of the eligible €GC baskets remains fixed, the countries’ debt meeting the defined criteria for inclusion in each basket may change from time to time. Where the combined credit rating of a country that falls within the definition of Euro zone countries changes, LCH.Clearnet Ltd will add or remove that country’s debt from each of the relevant eligible €GC baskets based on the new combined credit rating of that country.

Luckily, Portuguese bonds are still eligible for trading/repoing/margining on OTC/Bulletin Boards, where the bid/ask will soon be greater than the actual bonds price.