Hedge funds are betting on Roman debt as S&P Market Intelligence data show that investors are short $37 billion in Italian government bonds They have accumulated $37 billion in short bets on Italian government debt, according to P Market Intelligence data. Hedge funds are betting heavily on Italian government bonds, and investors haven’t bet this much on Rome since 2008 as Italy faces political instability, an energy crisis, and an 8.4% inflation rate in July.
Investors expect Italy to default on its debt amid Italian bond market instability and energy crisis.
Italy’s economy has been unstable recently as the war between Ukraine and Russia has wreaked havoc on the European country bordering the Mediterranean coastline. The country is dealing with a seriousenergy crisisand Italian residents are being asked to turn down their heat this winter. The Italian economy continues to deteriorate, andpress reportsreveal that huge numbers of investors are shorting Rome’s debt.
Bond borrowing schemes highlight how investors borrow Italian debt to bet that the value will decline before the debt is repurchased.S&According to P Market Intelligence data,through August 23, €37.2 billion of Italian government bonds have been borrowed. The total amount of bonds borrowed is the highest since January 2008, during the Great Recession. Italy continues to record high inflation rates of 7.3% in May, 8.5% in June, and 8.4% in July
$37 billion in short selling suggests that market speculators believe Rome will default and the financial shock will spread contagiously throughout Europe. Italy is traditionally known for its strong economy, but the country is dependent on Russian gas. The International Monetary Fund (IMF) warned last month that Italy’s economy could shrink by 5% due to tensions between Europe and Russia over the Ukraine-Russia war. Italy’s recession comes as India overtakes the U.K. to become the world’s fifth-largest economy.
Reportnoted in July that Italy and its prime minister, Mario Draghi, “are not doing enough to accelerate growth.” Despite Draghi’s pledge in July 2012 to save the euro, Italy is struggling, and the country is paying the second-highest premium to Greece to borrow government bonds. Berenberg economist Holger Schmieding says: ” Draghi is trying and doing a little here and there, but neither I nor the market is yet convinced that trend growth in Italy is strong enough.”
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