Two days ago we demonstrated that the the charts of Irish bonds, which has now joined Greece, and soon Portugal, in being locked out of capital markets, looked like, as Citigroup put it, a Nightmare on Kildare Street. Today in an attempt to normalize the market, yet which will only remove even more marginal (pardon the pun) liquidity, LCH once again hiked Irish bond margins, from 30% to 35%. And just as the case is with precious metals, soon no margin will be allowed and 100% cash (or gold) collateral will be demanded. In the meantime, look for bid/ask spreads to surge, the ECB buying to be the only buying in all peripheral markets, and CDS traders to once again start being demonized following the starting EU summit which will achieve nothing, but spread further confusion, and even more doubt about the viability of the euro.
European clearing house LCH.Clearnet raised the margin requirement on Irish government bonds to 35 percent from 30 percent on Thursday after a jump in Irish spreads on renewed concern it can service its debt in the longer-term.
The move will make it more expensive to trade Irish sovereign debt, already a thinly traded paper, and underlines the scale of Ireland's debt crisis four months after a bailout was agreed with the EU/IMF.
"This decision is based solely on publicly available yield spread data and in no way represents a forward-looking market view," LCH.Clearnet said on its website after it cut the margin call.
Ireland's borrowing costs have hit euro lifetime peaks this week amid worries its banking crisis is even worse than previously feared and resistance from European leaders to giving Dublin further help immediately.