Investors began to hedge the risks of Italy's exit from the eurozone

The political crisis in Italy has forced investors to think about the risks of the country's exit from the eurozone and about ways to hedge such risks. 

Recall that in Italy, Prime Minister Mario Draghi announced the resignation from his post, which led to an aggravation of political uncertainty in the country and the dissolution of parliament. New parliamentary elections are scheduled for September 25. 

In addition, the spread between old and new five-year credit default swaps (CDS) increased by 14 basis points, to the highest since 2018. The difference between the old and new credit and currency swaps issued after 2014 in accordance with the updated rules of the International Swaps and Derivatives Organization (ISDA) is that the latter provide investors with better protection against the transfer of government debt obligations to another currency.

Investors fear that as a result of the new elections in the Italian parliament, the number of eurosceptics will increase, and the new government may choose a less responsible course in fiscal policy.

The value of Italian bonds fell after the news of Draghi's resignation, and yesterday's decision by the European Central Bank to raise interest rates for the first time in 11 years, and immediately by 50 bps, led to an even greater decline in the value of securities.