LCH Clearnet announced today on their website that they would increase deposit requirements for those trading Spanish government bonds.
Traders now must reduce leverage or put up additional collateral against their positions.
The new deposit requirement for bonds in the 10-15 year maturity range was hiked to 14.7 per cent.
Almost all maturities of Spanish sovereign debt are subject to the new margin requirements, which go into effect at close of business on Thursday, June 21.
From the release, here are the new margin requirements across all maturities of Spanish government debt:
Photo: LCH Clearnet
LCH Clearnet is the dominant provider of clearing and settlement services in the European sovereign bond markets. BofA called such a margin hike in Spanish bonds “certainly a negative market signal” in a note earlier today.
However, BofA also said that such a move by LCH may be mitigated for two reasons. From the note:
- Repo trading of Spanish government bonds mainly takes place on the domestic platform, and not on LCH Ltd. The former is governed by LCH SA margin rules, which already provide for high haircuts. A 15ppt increase in LCH Ltd would mean that just an additional c.6ppt margin is required on LCH SA for the two platforms to be aligned (for 10y bonds)
- The amount of trades taking place on both platforms is more limited than last year, as banks have already obtained plenty of liquidity from the ECB (Spanish banks are currently borrowing €325bn in all operations, compared to just €106bn before the two 3y LTROs)
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