Friday, November 5, 2010

Bond Yields continue to soar

Breaking through 6% in the middle of September was significant, breaking through 7% a week ago was significant but now it seems we’re hurtling towards 8%, and no Information Note seems to be stemming the tide.  Here’s a few screenshots lifted from Bloomberg.

Bond Yields 3M to Nov 04

Markets were closed by the time the four year adjustment and growth projections were released yesterday.  How has the reaction been in this morning’s early trading?

Bind Yields Nov 05

It is that this report posed to the FT website last night didn’t help.

Clearing house warning to Irish bond traders

Fears over the health of the eurozone bond market intensified after one of Europe’s biggest clearing houses warned investors they could be compelled to stump up substantially more money to trade in Ireland’s debt.

LCH.Clearnet told members they might be required to deposit more cash to trade in Irish sovereign bonds, a move that is being widely interpreted as a signal that the organisation will act next week.

LCH.Clearnet has contacted members in the past few days to say that, under newly introduced rules, it has the power to impose a 15 per cent “haircut”, a cash deposit to help indemnify against default risk, against Irish bonds if it determines that the risk of the Irish government defaulting has increased.

A spokesperson for the clearing house said: “We have the ability to do so should we decide to do so.”

Any move by LCH.Clearnet to increase Irish debt margin requirements could undermine the Irish banking system.

Irish 10-year yields rose for the eighth day on Thursday, jumping 19 basis points to a fresh record of 7.49 per cent since the launch of the euro.

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