We were worrying recently that LCH.Clearnet would hike margin requirements for trading Portuguese bonds (hence, a sell-off).
Something else has come up:
Amendment of RepoClear €GC Baskets to exclude Portugal
Following S&P’s lowering of its sovereign credit ratings on Portugal to BBB on Friday 25 March 2011, RepoClear participants are advised that with effect from Monday 27 March 2011 Portuguese Government bonds will no longer be eligible for delivery in any of the RepoClear €GC Baskets.
Until today’s downgrade Portugal had been eligible for the single A €GC Basket.
That’s a RepoClear circular sent out to members on Friday.
Update: Important point — LCH.Clearnet still clears Portuguese government bonds. Although removal from the single A €GC basket is still not good news.
S&P’s BBB was incompatible with LCH.Clearnet’s Combined Credit Ratings criteria. Chart below or turn to p. 176 of the clearing house’s regulations:
Goodbye, another bit of international trading in Portugal’s debt.
Hello (again) Portuguese banks buying the stuff to pledge to the European Central Bank instead.
And thus hello, domestic banking exposure.
Related link:
Portugal’s negative cash flow – FT Alphaville