Margin call on Irish bonds up

EUROPEAN clearing house Clearnet yesterday pushed up its margin requirement for trading Irish sovereign bonds, raising it from 30 per cent above the normal requirement to 45 per cent above the norm.

Clearnet, which handles €11 trillion’s worth of bond trading a month, said its analysts had made the decision after the spread between Irish bond yields and a basket of triple-A rated European bond yields moved above a threshold of 450 basis points.

The action means that traders of Irish sovereign bonds must supply Clearnet with collateral equivalent to a value of 45 per cent of their net exposure, far above the normal requirement – which is typically two to five per cent.

It indicates that Clearnet thinks the market is pricing in nearly a one-in-two chance of a default.
The move is the third such change in two weeks, meaning that the collateral required for trading Irish bonds has been above that of equivalent bonds since 10 November, when the yield on Irish ten-year bonds jumped to 8.6 per cent.

Clearnet’s head of fixed income John Burke said: “We can’t afford to be surprised by a fast default. We have to protect ourselves against the possibility.”

The spread between Irish and German bond yields is now at an all-time high of 734 basis points.
Clearnet’s move comes as Ireland prepares for an important by-election in Donegal, usually a safe seat for the main government party but now at risk of falling to the far-left nationalists Sinn Fein on the back of the bailout chaos.