S&P Market Rome Intelligence data shows that investors have a $37 billion short bet against Italian debt. This means that hedge funds are betting against Rome’s debts. Investors haven’t bet this much against Rome since 2008. This is because Italy is facing political uncertainty, an energy crisis, and an inflation rate of 8.4% in July.
Investors expect Italy to stop paying its debts because of the country’s unstable bond market and energy crisis.
Recent changes in Italy’s economy have been caused by the Ukraine-Russia war, which has caused a lot of damage to the European country next to the Mediterranean. Italy is in the middle of a big energy crisis, so people are being asked to turn down the heat this winter. People think that the Italian economy will only get worse, and reports show that a huge number of investors are shorting Rome’s debts.
Bond borrowing schemes show how investors borrow Italy’s debts to bet that their values will go down before the debt is due to be bought back. By August 23, €37.20 billion worth of Italian bonds had been borrowed, according to data from S&P Market Intelligence. Since January 2008, during the Great Recession, this is the most bonds that have been borrowed. Also, Italy has continued to have high inflation rates. In May, it was 7.3%, in June it was 8.5%, and in July it was 8.4%.
The $37 billion in shorts shows that market speculators think Rome will stop paying its debts, and that the shock to Europe’s finances will spread like a virus. Italy is known for having a strong economy, but the country depends on gas from Russia. Last month, the International Monetary Fund (IMF) said that Europe’s tensions with Russia over the Ukraine-Russia war would cause Italy’s economy to shrink by 5%. Italy’s economy is getting worse at the same time that India is becoming the world’s fifth largest economy, passing the U.K.
in July that Italy and the country’s prime minister, Mario Draghi, have not done enough “to kick-start growth.” Despite Draghi’s pledge to save the euro in July 2012, Italy is struggling and the country pays the highest premium to borrow bonds after Greece. Holger Schmieding, an economist at Berenberg, said: “Draghi is trying, has done a little bit here and there but neither I nor the market are yet convinced that trend growth in Italy is strong enough.”