In Squeezed Euro Debt Sales, Governments Curb Inflated Hedge Fund Demand

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The ECBs massive bondbuying programme has fuelled a bonanza in euro zone sovereign debt, with some investors vastly overstating their orders at debt sales in a bid to secure the coveted paper. But now some governments are starting to say, enough is enough.

Borrowers including the European Union, France and Spain are moving to rein in orders from hedge funds in their syndicated bond sales, a government official and four banking sources involved in the deals told Reuters.

The aim is to stem a deluge of inflated orders from these funds, which vastly overstate their demand in an attempt to guarantee they secure their desired amount of bonds, according to the sources.

The concern is that if you dont have the correct picture, you might make mistakes in the future about what the actual demand for the bonds is, said Stelios Leonidou, who manages Cypruss debt issuance. He told Reuters he had raised the issue with banks, though did not say Cyprus planned to curb orders.

The investor rush to snap up sovereign debt is being partly driven by the European Central Banks immense presence in the secondary market, where its 1.85 trillioneuro 2.2 trillion pandemic war chest to shore up the euro zone economy is making it harder for investors to find bonds to buy.

The likes of hedge funds and some other investors are looking to make a quick profit by buying bonds in government sales and flipping them to the ECB for more.

Order inflation has become so extreme of late that government…

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