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LCH Lowers Extra Margin Charge on Irish Bond Trading to 30%

LCH Clearnet Ltd. reduced the extra deposit it charges clients to trade Irish government bonds to 30 percent from 45 percent after the yield on the nation’s debt declined.

The additional charge will be calculated on net exposure at the close of business today and reflected in a margin call tomorrow, LCH Clearnet said on its website. LCH increased the deposit three times last month as Irish yields soared to more than 600 basis points above the Bloomberg Fair Value benchmark of AAA euro-region sovereign debt. The yield spread widened five basis points to 509 basis points today.

“LCH is reflecting an improvement in the market over the past week,” said Padhraic Garvey, head of developed-market debt strategy at ING Groep NV in London. “It’s a small change. I don’t expect it to have much of an effect.”

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.

LCH added a 15 percent extra margin requirement on Nov. 10, before raising it to 30 percent on Nov. 17 and 45 percent on Nov. 25.

“Our tendency is to give margin back to people as soon as we reasonably can,” John Burke, head of fixed income at LCH, said in a telephone interview on Dec. 2. “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.”

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