Home Hedge Funds Hedge Funds Have Amassed a $37 Billion Short Bet Against Italy’s Debt

Hedge Funds Have Amassed a $37 Billion Short Bet Against Italy’s Debt

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  • Hedge funds have amassed big bets against Italian debt, according to S&P Market Intelligence data. 
  • The value of Italian bonds borrowed by investors hit €37.20 billion ($37.30 billion) in late August, and bets had climbed to the highest since the global financial crisis.
  • Italy is facing a national election in September and is dealing with an energy crisis. 

Hedge funds are betting big against Italian bonds as the country simultaneously deals with an energy crisis sweeping across the region and political uncertainty with a national election just weeks away. 

The value of Italian bonds borrowed by investors hit €37.20 billion ($37.30 billion) on August 23, according to data sent to Insider from S&P Market Intelligence. 

The loan value reached as high as €39.19 billion on August 2, the highest since January 2008, the firm’s dataset showed. Investors borrow debt expecting the price will decline before the investor has to buy back the debt. Bond yields move inversely with prices.

The S&P Market Intelligence data was first reported by the Financial Times and Reuters.

The climb in short positions, or bets that an asset’s price will drop, is taking place as Italy prepares to hold an election on September 25, one that was called early after the July resignation of Mario Draghi as prime minister and the dissolution of parliament.

Italian bonds yields rose, as prices fell, after Draghi’s resignation set off questions about who would be next to lead the country, whose debt outstrips its gross domestic product. Italy’s 10-year bond yield in June had breached 4% for the first time since 2014 on the prospect the European Central Bank would start raising interest rates for the first time in 11 years. The yield wasn’t far from that level on Tuesday, at 3.8%. 

Right-wing party Fratelli d’Italia has been leading in current polling, and its leader, Giorgia Meloni, could become Italy’s first female prime minister. 

Meanwhile, Rome is grappling with a surge in energy prices, as is the rest of Europe, in the wake of Russia’s war against Ukraine launched in late February. Italian lawmakers earlier this month approved a package that was worth about $17 billion to shield households and companies from the jump in energy and other costs. Inflation in Italy was 8.4% in July, easing somewhat from 8.5% in June. 

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