When the overbidding of hedge funds disrupts government debt raising

Posted on Apr 9, 2021, 12:30 PMUpdated Apr 9, 2021, 3:53 PM

The numbers give the spin . In January, the order book for the placement of 10 billion euros of 10-year bonds by the Spanish Treasury initially reached more than 130 billion euros. French securities at 50 years have attracted 75 billion euros in demand for 7 billion offered, a record. And last week again, the issue of Italy, in two installments, saw orders eleven times greater than the amount raised. According to Rabobank’s estimates, order books for European government debt issues grew by an average of 40% last year. And inflation continued at the start of the year.

This phenomenon concerns operations by syndication, in which the banks, united in a syndicate, place securities directly with investors, according to the orders received. It is explained, of course, by the need for safe securities of investors in the face of uncertainties linked to the pandemic. But not only. It is also closely linked to the increasing participation of certain speculative funds, and in particular hedge funds, in these operations. ” They are looking for quick wins, buying securities on issue and selling them the next day in the secondary market at a premium. », Explains Michele Cortese, at Societe Generale. Others resell them to the European Central Bank as part of its securities purchase programs intended to support the economy.

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