Italian bonds are being targeted by investors who are aggressively “shorting” them, that is, they are betting on a fall in the value of Italian bonds. The total value of Italian bonds, on which investors took negative positions, exceeded 39 billion euros in August, the highest level since January 2008, according to S&P Global Market Intelligence.

The aggressive attitude of investors towards Italy reflects the negative political situation in which the neighboring country finds itself due to a surge in energy prices and the possibility of a complete cessation of gas supplies from Russia, as well as fears about the eurozone economy and its impending recession.

They took a negative position in more than $39 billion in bonds, the highest level since January 2008.

In an interview with the Financial Times, Mark Dowding, chief investment officer of BlueBay Asset Management, which manages $106 billion in assets, called Italy Europe’s weakest link. Dowding, who sells 10-year Italian government bonds, said Italy “is the most vulnerable country in terms of what happens to gas prices and the critical political situation.” The collapse of the government of Mario Draghi and the appointment of early elections next month pose real risks for Italy, with the possibility of a seizure of power by Eurosceptic parties that have expressed their intention to revise the details of the country’s reconstruction program. In this case, they could jeopardize the neighboring country’s access to the 200 billion euros it is entitled to receive from the 800 billion euro Recovery Fund.

After all, the IMF predicted last month that the EU’s natural gas embargo on Russia would shrink Italy’s economy by at least 5% unless other countries offer it energy aid from their own reserves. And the risks that threaten the third largest European economy do not end there. According to the FT, investors rightly believe that Italy is among the countries that will be hit hardest by the ECB’s decision to raise interest rates and at the same time end the bond-buying programs that have so far supported Italy’s debt. Italian government bonds have been under increasing pressure for weeks, with 10-year yields rising to 3.7% from 1.37% at the start of the year. The result, of course, is an increase in the distance separating them from their respective German bond yields, commonly referred to as the spread, which has widened to 2.3 percentage points.

It should be noted that, in the recent past, shorting Italian bonds has proven to be extremely profitable for hedge funds, as the country is going through protracted political crises and its $2.3 trillion public debt is a concern. Euro. However, many fund managers see rates on Italian debt as exaggerated, given that the ECB will use a transitional tool to control bond yields.