Bloomberg News

LCH Raises Charges on Spanish, Italian Bonds for Collateral

February 27, 2012

(Updates with analyst comment in third paragraph, downgrades in fourth.)

Feb. 23 (Bloomberg) -- LCH Clearnet Ltd., Europe’s biggest clearinghouse, increased the discount it applies for some Spanish, Italian and Belgian government bonds when they are used as collateral by its customers.

LCH will apply a so-called haircut, or discount rate, of 8 percent on Spanish bonds due in seven-to-10 years, it said in a document on its website dated Feb. 21. The charge will be applied from Feb. 28 and is up from a 6 percent rate imposed from Jan. 20. Haircuts will also increase for similar-maturity Italian and Belgian debt.

“It sends a message that they are a more speculative investment and therefore higher risk,” said Bill Blain, a strategist at Newedge Group in London. “This should serve to remind investors that Europe’s debt crisis is far from over.”

Italian and Spanish bond yields were driven to euro-era records last year amid concern the debt woes that forced Greece, Ireland and Portugal to seek bailouts would spread to the rest of the region. While the securities have since rallied, Fitch Ratings lowered the credit grades for Italy, Spain and Belgium on Jan. 27 and Moody’s Investors Service cut the debt ratings of Italy and Spain on Feb. 13.

Seven-to-10-year Italian securities will have a haircut of 8 percent from Feb. 28, compared to 6.5 percent previously, LCH said. Similar-maturity Belgian bonds will have a 5.5 percent haircut, from 4.25 percent.

‘Business as Usual’

Reviewing the haircuts applied to member margin collateral is “business as usual,” said Rachael Harper, a spokeswoman for LCH Clearnet.

Clearinghouses guarantee investors’ trades are completed by standing in the middle of two counterparties. The traders may use either cash or securities as collateral to cover so-called margin requirements and assets used are subject to varying haircuts. A higher discount rate means more of the securities need to be provided as collateral to offset the same trading position.

Italian bonds have handed investors a return of 9.3 percent this year, according to indexes compiled by Bloomberg and the European Federation of Financial Analysts Societies, rallying after the European Central Bank offered unlimited three-year cash to the region’s banks in December.

Spanish securities gained 2.1 percent while Belgian debt made a profit of 3.4 percent, according to the indexes.

--Editor: Paul Dobson

To contact the reporters on this story: David Goodman in London at; Emma Charlton in London at

To contact the editor responsible for this story: Daniel Tilles at

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