Betting on Crisis, Hedge Funds Short Italian Bonds
Five Star politicians, including the group’s founder and current leader, pondered such radical cures to Italy’s economic woes as restructuring its enormous debt and establishing a currency in addition to the euro.
.. The Janus Global Unconstrained Fund, managed by William H. Gross, lost 3 percent in one day.
.. Hedge funds have been building up their short positions for months, betting that Italian bonds will face another bout of selling pressure
.. the same strains that prompted the earlier bout of selling — weaker countries running up potentially unsustainable debts — are showing again.
.. “These people feel very strongly that deficit limits make no sense,”
.. a robust market for futures contracts tied to Italian government bonds had made it easy to bet against Italy
.. In addition to betting against bonds, many prominent hedge funds are calculating that the share prices of large Italian companies will fall drastically.
.. Bridgewater, the world’s largest hedge fund, has a number of short positions on Italian financial institutions, including UniCredit, Italy’s biggest bank
.. “What we have had so far is a political event, not a credit event,” he said, referring to the point when a country runs out of money. “The endgame is still 12 to 24 months out.”
.. What has spooked investors the most has been the Italian ruling party’s flirtation with a second currency.
.. Strapped Greek and Italian citizens could use this alternate currency to pay taxes and for things like gasoline or health care from the state.
.. “Italy is a conservative country,” Mr. Bonansinga said. “I am just not sure that people want to leave the euro.”