Clearing House Doubles Irish Bonds Margin Requirement
Web Producer, CNBC.com
Clearing house LCH Clearnet doubled its margin requirement for Irish government bonds Wednesday, reacting to fears over uncertainty regarding the country's debt issues, which pushed yields on Irish debt higher.
Ireland, which does not need funding until next year, pledged later Wednesday to work together with a joint mission from the European Union and the International Monetary Fund on a plan to help its stricken bank sector.
"LCH.Clearnet Ltd has revised the risk parameters for Irish government bonds cleared through the RepoClear service," the clearing house said in a statement.
RepoClear is Clearnet's market service that clears cash bond and repo trades across Austrian, Belgian, Dutch, German, Irish, Finnish, Portugese, Slovakian, Slovenian, Spanish and UK government bonds, as well as some additional markets.
The total margin required for positions of Irish government bonds will be 30 percent of net positions, compared with a requirement of 15 percent of net positions a week ago.
"It is a significant move, but the risks that we are seeking to manage are significant too," John Burke, head of fixed income at Clearnet, told CNBC.com in a telephone interview.
"The market is sending a signal through its pricing and we're taking on board that information," Burke added.
Irish five-year credit default swaps, reflecting the cost of insuring against default by Ireland, rose 25 basis points Wednesday to 545 basis points as market participants saw no clarity on a way to resolve the country's debt problems.
The yield on 10-year Irish government bonds was 8.371 percent, compared with 2.604 percent for German 10-year bonds and 2.838 percent for US 10-year Treasurys, according to Thomson Reuters data quoted by Dow Jones.
Although Clearnet's margin requirement doubled in terms of percentage of net exposure, the amounts required are not necessarily double as exposure changes every day, Burke explained.
Margins do not need to be paid in cash, investors being able to pay in other assets, such as higher-rated bonds, he added.
Burke did not comment on the exposure or volumes that clients have through Clearnet.
According to Clearnet's Web site, RepoClear monthly volumes average 11 trillion euros ($14.86 trillion).
- Ee Sing Wong, CNBC Producer, contributed to this story.