UPDATE 2-Irish bond spreads in extra deposit territory

* Irish bonds are above levels cited by LCH.Clearnet

* The firm has not used measures introduced last month

* Chile could withdraw $6 bln pension assets


By Luke Jeffs and Cecilia Valente

DUBLIN/ LONDON, Nov 5 (BestGrowthStock) – Irish sovereign bond
spreads are trading at levels that could trigger a special
trading safety net introduced a month ago by clearing house
LCH.Clearnet to protect bondholders from government default.

Irish sovereign bonds have since Wednesday been trading at a
spread of over 500 basis points, according to Reuters data. They
hit 550 bps for the first in early trading on Friday, making
Irish government debt the riskiest of the eurozone countries —
apart from Greece which is trading at about 925bps.

The Irish spread puts that debt above a level cited by
European clearer LCH.Clearnet as the point at which it might
require its trading customers to post extra collateral, known as
margin, to continue trading individual sovereign debt.

The UK-based clearing house said on Oct 5 that it had
introduced new measures that it could apply if an individual
European government’s debt started to look too risky.

“We would generally consider a spread of 450 bps over the 10
year AAA benchmark to be indicative of additional sovereign
risk,” LCH.Clearnet said in the Oct. 5 statement.

LCH.Clearnet does not clear Greek bonds, so the prospect of
additional margin calls is closest for Irish sovereign debt, but
Portuguese bonds are not far off the 450 point — trading on
Friday at 420bps.

The Financial Times reported on Friday the London clearer
had told members they might be required to deposit more cash to
trade in Irish sovereign bonds, and that it was widely expected
to act on its words next week.

But LCH.Clearnet told Reuters it had not triggered the
safety net, nor had it contacted its members — which include
the world’s largest investment banks — to tell them that it may
require extra margin to cover Irish government bonds.

“We have not invoked the risk management framework nor
called on members to put up additonal margin with regard to a
European sovereign issuer,” LCH.Clearnet’s head of fixed income
John Burke told Reuters.

A spokeswoman for LCH.Clearnet declined to comment on
whether the firm will ask clients for extra margin, or what
level a spread would have to reach before the clearer will take
that step.

Ireland said on Thursday it was planning to push through
spending cuts and tax hikes totalling 6 billion euros ($8.49
billion) next year, the toughest budget in the country’s
history, in a last-ditch effort to convince investors it is not
on the verge of financial meltdown. [ID:nLDE6A3168]

The country’s public debt, due mainly to the bailout of its
banking system which will cost 50 billion euros, has also
triggered a regulatory mechanism that could result in the
withdrawal of just under $6 billion Chilean pension assets.
($1=.7071 Euro)
(Reporting by Luke Jeffs, Carmel Crimmins and Cecilia Valente;
Editing by Jon Loades-Carter and Andrew Callus)

UPDATE 2-Irish bond spreads in extra deposit territory