S&P Market Intelligence data shows that hedge funds are playing with Rome’s debt as investors accumulate $37 billion in short bets against Italian debt. Hedge funds are betting big on Italian bonds as Italy faces political instability, an energy crisis and inflation of 8.4% in July, and investors haven’t had such a run on Rome since 2008.
Investors await Italian debt default amid country’s shaky bond market, energy crisis
Italy’s economy has been volatile lately, with the Ukraine-Russia war wreaking havoc on the European nation along the Mediterranean coast. The country is experiencing a severe energy crisis, and Italian residents have been asked to turn down the heat this winter. Italy’s economy is expected to worsen, and many investors are reportedly dumping Rome’s debt.
Bond borrowing schemes show how investors borrow Italian debt to bet that values will fall before the debt is bought back. According to S&P Market Intelligence data, €37.20 billion of Italian bonds were issued in 2016. It’s August 23rd. The amount of bonds issued is the highest since January 2008, during the Great Recession. Italy continues to post high inflation, with May posting 7.3%, June 8.5%, and July 8.4%.
Estimates of the $37 billion shorts market believe that Rome will not fall and financial panic will spread like contagion across Europe. Italy has traditionally had a strong economy, but the country is dependent on Russian gas. The International Monetary Fund (IMF) warned last month that the Italian economy would shrink by 5% due to tensions with Russia over the Ukraine-Russia war. Italy’s economic collapse India is being dominated by the United Kingdom as the world’s fifth largest economy.
Reports in July suggested that Italy and the country’s Prime Minister Mario Draghi were not doing enough to “kick-start growth”. Despite Draghi’s pledge to save the euro in July 2012, Italy is struggling and the country is paying the highest rate to borrow bonds after Greece. “Draggi is trying, he’s done a little bit here and there, but neither I nor the market believe that Italy’s growth is enough,” said Holger Schmieding, an economist at Bernberg.
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