Management of Sovereign Credit Risk for RepoClear Service  

Dear RepoClear Member,

In accordance with the Sovereign Credit Risk Framework and in response to the yield differential of 10 year Portuguese government debt and 10 year Irish government debt against a AAA benchmark, LCH.Clearnet Ltd has revised the risk parameters for Portuguese and Irish government bonds cleared through the RepoClear service.  The additional margin required for positions of Portuguese government bonds will consequently be increased from 25% to 35% for long positions.  The additional margin required for positions of Irish government bonds will be increased from 35% to 45% for long positions. These amounts will be adjusted for the current bond price*.  Short positions will pay a proportionately lower margin.

1. This decision is based solely on publicly available yield spread data and in no way represents a forward looking market view. LCH.Clearnet will continue to monitor yield spreads closely and keep the parameters under close review in accordance with the Sovereign Credit Risk Framework.

2. The additional margin will be reflected in a margin call on Wednesday 27 April 2011.

3. For further information please contact either Tom Chapman ([email protected]) +442074266338 or Lianne Arnold ([email protected]) +442074267376

 
 
Chris Jones
Executive Director and Head of Risk Management

 
* The impact of bond price can be material. For example, a 35% multiplier applied to a trade with a current price of 70 would be approximately 22% of nominal value. A 45% multiplier applied to a trade with a current price of 70 would be approximately 28% of nominal value.