LCH Clearnet Ltd., Europe’s largest clearing house, said it hasn’t changed the extra deposit it charges clients to trade Italian government bonds.
“We have not raised margins,” Rachael Harper, a London-based spokeswoman, wrote today in an e-mailed response to questions. “If we do so, it will be posted on our website.” The AAA benchmark against which LCH Clearnet measures sovereign yields “has not changed,” she said.
Clearing houses 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. Higher charges make it more expensive for banks to raise cash by using their government debt securities as collateral in so-called repurchase operations cleared through LCH Clearnet.
Italian government bonds dropped today amid speculation that LCH Clearnet may increase the charges, driving the 10-year yield eight basis points higher to 6.73 percent at 4:36 p.m. London time. Yields were 424 basis points above the Bloomberg Fair Value benchmark of AAA euro-region sovereign debt, the same gauge used by LCH Clearnet, at yesterday’s close. Italian two-year yields jumped 33 basis points today to 6.43 percent.
LCH Clearnet said in October 2010 that a yield premium, or spread, of more than 450 basis points between a nation’s 10-year bonds and a AAA benchmark would “be indicative of additional sovereign risk,” and may cause it to “materially increase the margin required for positions in that issuer.”