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Italy 10-Yr Yields Up ANOTHER 5 bps as Hedge Funds Bet “Crisis”

by Brett on July 7, 2011

Our daily Italy Debt Watch continues!  Yields are once again hot, up another 5bps at I type (11:30am Pacific time).

Italy 10 Year Bond Yields July 7 2011

Italy 10-year yields are blowing up! (Source: Bloomberg)

The most popular story on Bloomberg today features hedge funds piling into bets on the European debt crisis getting worse:

Hedge funds that trade bonds and loans are increasing bets that Europe’s sovereign-debt crisis will spread to Portugal, Spain and Italy, even after Greece won a temporary reprieve with 12 billion euros in aid.

“Nothing you’ve seen so far has dealt with solvency, just liquidity,” said Simon Finch, head of credit trading at CQS UK LLP, a London-based hedge fund that oversees $11 billion.

Source: Bloomberg – Hedge Funds Bet on Wider European Debt Crisis

The article also reports that Italian yields are now at their highest spreads over German bunds since the euro was introduced in 1999.

Yesterday we featured an interview with Swiss hedge fund manager Felix Zulauf, who believes that the longer countries like Italy stay in the EU, the greater the likelihood of their default becomes, because they flat out can’t compete with German manufacturing on an even currency basis.  It looks like other hedge fund managers – and the bond market – are beginning to concur.

Our usual hat tip to our trader on the scene, Dr. Evil, for contributions to this story.


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