Clearing house LCH.Clearnet has cut the cost of using Irish government bonds to raise funds to 15% from 25%. This follows a fall in their 10-year debt yield differential versus a triple-A benchmark.
Irish government bond prices have rallied sharply this year, with the October 2020 bond closing today with a yield 6.88%, according to the NTMA website.
''This decision is based solely on publicly available yield spread data and in no way represents a forward looking market view,'' LCH.Clearnet said in a statement on its website.
LCH.Clearnet raised margins rapidly during last year, from 35% in March to a high of 80% in June. The margin was cut to 65% on August 11, following the July European council meeting, which removed the threat of EU imposed haircuts on bondholders of countries that required a bailout from the new European Stabilisation Mechanism (ESM).
Further cuts to the margins followed on September 1 (from 65% to 55%), on October 6 (down to 45%), on January 26 (down to 35%), and on February 8 (down to 25%). Today's cut brings the margin down to 15%.
LCH.Clearnet, which acts as a clearing house between buyers and sellers of bonds and other securities, imposes an upfront margin which members trading in securities must pay to cover possible default risk in the period between a trade being made and finally settled.
An increasing margin reflects an increased risk of default, and vice versa. Lower margins make it cheaper to trade in a particular security.
Irish bond prices have risen strongly since last August, and as a consequence yields (which have an inverse relationship to price) have fallen.
