Swiss Central Bank Excludes Irish Bonds as Collateral

The Swiss central bank confirmed Wednesday it has excluded Irish government debt from a list of assets considered eligible as collateral for its repo deals – operations under which it lends money against collateral.

dublin commuters the earl
Peter Muhly | AFP | Getty Images
dublin commuters the earl

The move, which was first reported by Irish blogger Lorcan Roche Kelly, happened in December after major credit rating agencies cut Ireland's rating below 'A'.

"These bonds did not meet the criteria (to be used as collateral for repos) anymore," Swiss National Bank spokesman Werner Abegg told

Under repo operations, central banks usually buy securities from market participants, who undertake to repurchase them later at an agreed price.

The central bank's criteria, published on its Web site, state that, for a security denominated in foreign currency to be eligible as collateral, the issuer’s country of domicile must have a minimum rating of AA-/Aa3.

In mid-December, Moody's slashed Ireland's rating by five notches to Baa1 from Aa2 and warned that more downgrades may follow.

At the beginning of December, Fitch became the first ratings agency to strip Ireland of its 'A' credit status, cutting it by three notches to BBB+, despite a bailout worth 85 billion euros ($112 billion) agreed by the European Union and the International Monetary Fund in November.

Yields on Irish debt and the cost of insuring the debt did not react much to the news, which one analyst said will have no direct impact on the country.

"In terms of the sovereign, given it has the EFSF (European rescue fund) package, there's not a direct impact but in the current fragile market environment, these kinds of headlines don't help stabilise the situation," Michael Leister, rate strategist at WestLB, told Reuters.

"For Irish banks and holders of Irish bonds who want to repo, it's much more important what the ECB does and they implicitly made it clear with Greece that they will accept euro zone sovereign bonds whatever the rating."

- Reuters contributed to this report