Italy’s debt is under attack by hedge funds

A month before the legislative elections in Italy, more and more “hedge funds” are short selling public debt. With the effects of the nationalist right campaign.

An article from the City of London media, the Financial Times, widely reported in Italy in the last 24 hours, confirms the intuitions of many Italian commentators: alternative management funds are created to test the third economy in the euro zone, in order, of course, to take advantage of it.

Their downside bets on Italian debt have never been higher since the Great Financial Crisis of 2008. According to data from S&P Global, the total value of Italian bonds borrowed by these investors for this purpose exceeded now at 39 billion euros.

The reasons put forward do not come from the most sophisticated analysis of the new electoral landscape that has emerged for the legislative elections on 25 September. In the British economic daily, an unnamed “big” hedge fund investor judged that “Italy seems to be the weakest country”, which would explain why it is now “widely” playing on the difference between German and Italian interest rates.

Short sale

Mark Dowdey, director in London of Blue Bay Asset Management, a subsidiary of the Canadian bank RBC, clearly expressed his reasoning: we are facing the country most exposed to the surge in gas prices and, then “the political hard”. Way, there too, of drawing the conclusions of an institutional chaos in Rome before it happened. Therefore, the investor declares the short sale of ten-year securities, using futures contracts.

By reporting the article announcing such financial clouds, the Italian public information channel RAI News can only establish the observation of a widening of the gap with the German reference rate, and the concern of this part of Italian savers, among them must be many of those voters who intend to overturn the political table within a month.

Through its headline, the Milanese daily Corriere della Sera, traditionally close to industrial circles, has no more illusions: “The biggest speculative campaign against the country’s debt continues”. An intermediary in the Italian market, Pietro Cali (Copernico SIM) considers that “the ghost of 2008 is very much in the minds of investors” and that the resignation of Prime Minister Mario Draghi last month brings to light “a strong appeal for short strategies” in Italy, because “hedge funds are always ready to take advantage of investors’ fears.”

Arm wrestling in the ECB

Could Italy’s debt default be inevitable, as the anti-EU right gains power? The thesis of a collapse in the announcement of the election results on September 25, not everyone believes in it. Also in the Financial Times, Decio Nascimento, the investment director of the American alternative fund Norbury Partners, warns the reckless who believe they can win a “standoff” against the European Central Bank (ECB), which installation in July of a new intervention tool intended. , can, to prevent the fragmentation of borrowing rates in the euro zone.

And that’s exactly what Augusto Minzolini, who runs Il Giornale, a newspaper in favor of a right-wing bloc that is clearly ahead in the polls, thinks. “We are not like in 2008”, because “this time”, he assures confidently, “there is the shield of the ECB”, except that it is clear that this argument of the threat from Frankfurt will not convince the hedge funds again.

Thatcher legacy

The Brothers of Italy (FdI), the so-called “post-fascist” formation, seizes, moreover, all the risks that this mistrust of the market brings and, thus, launches an attempt to -normalize with the same arbitrageurs internationally. The head of the FdI, Giorgia Meloni, remains the best in terms of voting intentions to replace President Draghi. He discussed these doubtful markets yesterday through the British agency Reuters: “We don’t want to destroy Europe. We don’t want to do crazy things.” This member, who forged the image of the only figure of the national opposition, reaffirmed that his government “will not harm the public finances”.

Recently in an interview with the conservative London magazine The Spectator, in this campaign exercise, Giorgia Meloni even claimed the legacy of Margaret Thatcher, the most famous figure of contemporary liberalism. From this point of view, he has a long way to go to gain support, including within his own political alliance. Il Foglio, a conservative Milanese daily, a lifelong supporter of former Prime Minister Silvio Berlusconi, wrote that despite “the image that Giorgia Meloni tries to show abroad, the truth is that his program has a strong protectionist impression, statist and anti-market. . More Lepenian than Thatcherian”. The aggiornamento has not been successful.

Benaouda Abdeddaim International columnist

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