Clearing house cuts margin to trade some Irish bonds

Fri, Jan 27, 2012, 00:00

IRELAND RECEIVED a boost yesterday with the news that London-based clearing house LCH Clearnet reduced the extra deposit it demands from clients to trade some Irish government bonds.

The margin needed will be reduced to 35 per cent from 45 per cent for so-called long positions. A long position is a bet the price of an asset will increase.

LCH is the world’s largest clearing house. It acts as a counterparty for its members who buy and sell different assets such as securities, bonds and repos, exchange traded derivatives and credit default swaps, giving protection to customers in the event of default.

At various points throughout the financial crisis LCH has adjusted the margin it demands from traders of certain sovereign debt to reflect the country’s perceived level of risk.

The yield on nine-year Irish government bonds fell slightly to 7.34 yesterday.

On Wednesday, the National Treasury Management Agency sold just over €3.5 billion worth of three-year debt, its first foray into the bond market since 2010.

The bonds were offered to investors holding €11.8 billion of outstanding bonds maturing in two years.

Meanwhile yields on Italian debt fell to the lowest level in seven weeks after Italy sold its maximum target at an auction of zero-coupon and inflation-linked debt yesterday. The indebted-country issued €5 billion in medium-term bonds at much lower interest rates.

The treasury sold €4.5 billion of the zero-coupon 2014 debt to yield 3.763 per cent, down from the 4.853 per cent paid on similar maturity bonds sold on December 28th.

The yield on Italy’s 10-year bonds touched 5.99 per cent, down 0.24 points on the day, before moving slightly above 6 per cent. – (Additional Reporting: Bloomberg)