LCH Hikes Spain, Italy Margins
Another day, another LCH margin hike on Spanish and Italian bonds. Spanish SPGBs which will have to post more margin beginning tomorrow are all bonds with a maturity between 0.75 and 3.25 years, as well as bonds between 10 and 15 years, as well as all short-term Italian bonds between 3.25 and 7 year, in effect offsetting Draghi's "reverse Twist" house of cards. Expect to see more flattening in the Spanish and Italian 2s10s curve, followed by more promises of imminent action by the ECB, which however, may finally be realizing that for Spain to actually demand a bailout, its 10 years will have to be closer to 10% than to 5%. Finally, if this ratcheting up in asset encumbrance in Europe doesn't send the VIX to single digits nothing will.
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