* LCH.Clearnet backs its margin decision
* The yield on Irish government bonds has worsened
* The decision was taken last night
By Luke Jeffs
LONDON, Nov 10 (Reuters) - European clearing house LCH.Clearnet said its decision on Wednesday to ask members to put up more collateral to trade Irish government bonds has helped the troubled Irish bond market.
"The key thing is that the market continues to function properly and that firms can continue to deal government bonds," John Burke, the head of fixed income at LCH.Clearnet, told Reuters in a telephone interview.
LCH.Clearnet, which clears Irish government bonds on behalf of its investment bank clients, said before the 0800 GMT market open on Tuesday it will increase the margin required to trade Irish sovereign debt by 15 percent as of Thursday.
The yield on an Irish sovereign bond compared to the German bund rose to hit a lifetime high of 592 bps at 1200 GMT.
"I'd be surprised if any change in the Irish government bond yield is attributable to our decision because we informed members of our approach a month ago," said Burke.
LCH.Clearnet said on Oct 5 that it had introduced a new policy that would enable it to request an extra 15 percent margin from members in the event that the yield on a European government bond exceeded 450 bps.
The Irish government bond yield broke that threshold on Oct 29 and has continued an upward trend since then, hitting 572 bps at the close on Tuesday.
Burke said the margin hike was signed off on Tuesday evening by LCH.Clearnet's chief executive Roger Liddell and head of risk management Christopher Jones after talks involving the firm's risk and business departments.
Clearing houses, such as LCH.Clearnet, collect cash in the form of margin on individual trades and default fund contributions, which they hold centrally to refund members left out of pocket in the event of a default.
Irish government bond yields have soared in recent weeks amid speculation the Irish government may have to take a Greek-style bailout from the European Union or International Monetary Fund.
Ireland's central bank governor Patrick Honohan said on Wednesday any assistance would not alter the fiscal austerity measures the government has already put in place.
(Editing by Ron Askew)