FT : When Irish margins are biting

Dreaded_Estate

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Sep 5, 2007
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Looks like things could get worse for Irish bonds.

Actually, it was as wide as 520bps at pixel time.
This is important because in the bond market 500bps represents a critical psychological point beyond which repo market trading in Irish government bonds becomes difficult.
Bloomberg has already noted that member firms dealing in Irish debt on LCH.Clearnet’s RepoClear platform are likely to see margin requirements rise to 15 per cent, based on an exchange rule announced in October, which calls for the re-evaluation of margin requirements when sovereign spreads begin trading convincingly beyond 450bps versus the Bloomberg Fair Value sovereign benchmark index for euro-ten-year issues.
Other indicators like Irish sovereign CDS may also be considered.
The index itself, back when the rule was announced, was already trading past 450bps. It’s now 476bps — as can be seen in the chart below, courtesy of Bloomberg:
As for Irish sovereign CDS, this has been rocketing through record wides by the day.
As yet, though, no Irish banks are LCH.Clearnet members. Just as well though since if they were big traders of Irish debt they’d probably get completely destroyed having to increase cash margins this much in their present condition.
Then again, Irish government debt itself is in a strange position here as foreign banks own far more of it than domestic ones. If it now becomes uneconomical to post these bonds for repo, we wonder it that’s another incentive to sell off on Ireland.
 


robut

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Apr 6, 2008
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8,729
For those who want the LINK To that article above:

FT Alphaville » When Irish margins are biting

Its at FT Alphaville - free to access as a blog.

Interesting comment by Patrick Jones at bottom:

"20 billion deficit and 150 billion total national debt, Ireland is a massive debt repaying machine not an economy"

Robut
 


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