LCH Clearnet Ltd. will reduce the extra margin it charges for Irish bond trading as yields fall, using the same criteria it applied when they rose, its head of fixed income said.
“Our tendency is to give margin back to people as soon as we reasonably can,” London-based John Burke said in a telephone interview yesterday. “On the way up, it was the fact that levels were sustained that we were checking. Likewise, in the reverse, it has to be sustained when it goes below the threshold on the way down, and it depends on how far below it has gone and the speed at which it got there.”
LCH increased the deposit it demands of clients for trading Irish bonds three times last month as yields soared to more than 600 basis points above the Bloomberg Fair Value benchmark of AAA euro-region sovereign debt. The yield spread narrowed to 543 basis points yesterday.
Clearing houses such as LCH guarantee investors’ trades are completed by standing in the middle of two counterparties, and raise margin requirements to protect themselves against losses should one side of the trade fail.