Investors Betting on Italian Default

The bets are mounting that Italy will be the next to face default in Europe.

The cost of insuring Italian debt against default jumped as shares in Italian bank UniCredit were briefly suspended for excessive losses, fueling fears Italy could be sucked into the debt crisis that has already forced Greece, Ireland and Portugal to take bailouts.

International financiers and European Union officials failed to make progress on Thursday on securing a private sector contribution to a second rescue plan for Greece. Officials are worried about how private investors can be involved without triggering a Greek rating downgrade to default.

The European Central Bank has said it would refuse to accept Greek debt as collateral in such a scenario but analysts expect the bank to find some way around that promise in order to avoid choking off finance to a fragile Greek banking system.

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The 10-year Italian government bond yield remained up by around 14 basis points at 5.25% in recent action, according to FactSet Research data. The premium demanded by investors to hold 10-year Italian debt over German bunds widened by around 24 basis points to 2.4 percentage points.

Bund yields added to an earlier decline on safe-haven flows after a much weaker-than-expected rise in June U.S. nonfarm payrolls.

The spread on Italian credit default swaps widened to nearly 243 basis points from 216.2 on Thursday, according to data provider CMA. That means it would cost $243,000 annually to insure $10 million of Italian debt against default for five years, up from $216,200 on Thursday.

Shayne Heffernan Shayne Heffernan oversees the management of funds for institutions and high net worth individuals. Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reach a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.

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