Rome’s Financial Volatility Will Shock Eurozone – Hedge Funds Bet $39 Billion Against Italian Debt Cryptocurrency
Hedge funds are betting against Rome’s liabilities as data from S&P Market Intelligence indicates investors have amassed a $37 billion short bet against Italian debt. Hedge funds are betting big against Italian bonds and investors haven’t bet this high against Rome since 2008, when Italy faced political uncertainty, an energy crisis and an inflation rate of 8 .4% in July.
Investors expect Italian debt default amid choppy bond market and energy crisis
Italy’s economy has been unstable lately, with the war between Ukraine and Russia wreaking havoc on the European country adjacent to the Mediterranean coastline. The country is facing a major energy crisis and Italian residents are being asked to turn down the heating this winter. The Italian economy has people speculating it will only get worse and reports show a massive number of investors are shorting Rome’s debts.
The bond borrowing patterns highlight how investors are borrowing Italian liabilities in order to bet that values will fall before the debt buyback matures. Data from S&P Market Intelligence shows that 37.20 billion euros of Italian bonds have been borrowed as of August 23. The sum of bonds borrowed is the highest since January 2008 during the Great Recession. Italy also continued to show high inflation rates, with May posting 7.3%, June registering 8.5% and July registering 8.4%.
The $37 billion in shorts suggests market speculators believe Rome will default and the financial shock will spread like a contagion across Europe. Italy is traditionally known for having a strong economy but the country is dependent on Russian gas. The International Monetary Fund (IMF) warned last month that Italy’s economy would shrink by 5% due to tensions between Europe and Russia over the Ukraine-Russia war. Italy’s economic slowdown is unfolding as India overtakes the UK as the world’s fifth-largest economy.
Reports noted in July that Italy and the country’s Prime Minister Mario Draghi had not done enough “to revive growth”. Despite Draghi’s promise to save the euro in July 2012, Italy is in trouble and the country is paying the highest premium for borrowing bonds after Greece. Berenberg economist Holger Schmieding said: “Draghi is trying, has done a bit here and there, but neither I nor the market are yet convinced that trend growth in Italy is strong enough.”
What do you think of hedge funds betting against Italian debt? Let us know what you think about this topic in the comments section below.
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