This is getting to be a tradition after peripheral bailouts…
In accordance with the Sovereign Credit Risk Framework and in response to the yield differential of 10 year Portuguese government debt against a AAA benchmark, LCH.Clearnet Ltd has revised the risk parameters for Portuguese government bonds cleared through the RepoClear service. The margin required for positions of Portuguese government bonds will consequently be increased by an additional 15% for long positions; this amount will be adjusted for the current bond price*. Short positions will pay a proportionately lower margin.
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* The impact of bond price can be material. For example, the effective multiplier applied to a trade with a current price of 70 would be approximately 9% of nominal value.
As usual, this is based purely on that notorious 450bps death spread, which Portugal has been trading above for a while.
Bonds were more frozen than rallying or collapsing on Thursday morning, however. The 10-year benchmark is yielding 8.4 per cent, the five-year 9.5 per cent.
The margin hike is another reason Portuguese banks had been desperate to stop buying government paper in advance of the bailout, we suppose, given the loss exposure.
The banks are in a happier place for now:
We don’t know about that. As is also traditional with peripheral bailouts by this point — the rescue loans come not to rescue the government bonds, but to bury them.
Related link:
Get yer collateralised Portuguese bonds here – FT Alphaville
Dear RepoClear member, Re: Portugal – FT Alphaville