Italian Clearing House CC&G Cuts Italian Bonds Margins

There was a pop in risk minutes ago after a headline hit that margins on Italian bonds had been cut by CC&G. Enthusiasm will likely be muted however, upon the realization that CC&G is an Italian clearing house, is not LCH Clearnet in any of its two variants, and is tantamount to (French) Fitch upgrading France in terms of relevance, especially when considering that the bulk of Italian bonds clear elsewhere. That said, this will likely be taken by the market as a hint that LCH may go ahead and lower margins next, although with Italian bonds trading back above 6%, the case may be a problematic one. Of particular note in the CC&G announcement is that the margin for bonds between 7 and 10 years was lowered from 11.65% as of November 9, to 8.15%. As for whether this is a harbinger for more margin cuts, we will likely find out soon.

BTPs rallied immediately post the last margin RAISE (on Nov 9th - orange dotted line) and we note that today was the biggest drop in price for the 2021 BTP in two weeks (and spreads jumped dramatically as we noted earlier today). We can't help but notice some eery similarities with the recent price action and the last ECB SMP-induced excitement in the summer. Did we rally back in BTPs only to fill that August gap to enable managers to cover? Something tells us that CC&G will be hiking rates again soon as the 6% yield barrier is broken the wrong way again.




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