Soros bought $2 billion of ITALIAN bonds from MF Global...

Discussion in 'Wall St. News' started by ASusilovic, Dec 14, 2011.

  1. J.P Morgan Chase & Co. and at least one large hedge fund bought Italian bonds that until recently were owned by MF Global Holdings Ltd., the bonds that played a key role in pushing the securities firm formerly run by Mr. Corzine into bankruptcy, according to people familiar with the matter.

    J.P Morgan and the hedge fund didn't buy nearly as much as the $2 billion that Mr. Soros spent to buy these bonds. The securities were sold just after MF Global's Oct. 31 bankruptcy filing under an administrator currently overseeing the firm, according to the people.

    Still, the purchases highlight the hefty profits that could come from these bonds. Mr. Soros's family fund, Soros Fund Management LLC, currently is up more than $130 million based on the marked-down prices paid for the bonds, according to a trader who bought some of the same bonds, though it is hard to put an exact value on the complicated trade.

    Buyers paid about 89 cents on the dollar for the Italian bonds, compared with a market price of about 94 cents at the time, according to the trader who bought them. There also are possible ways to protect against losses from the bonds, another reason some were excited to bid for them, according to the trader and others familiar with the trade.

    The bonds are no sure thing, however. For one, it may be difficult to sell this particular batch of bonds before they mature in December 2012, according to the trader who purchased the same bonds.

    Just as important, the trader and others say, investors remain on edge amid the European debt crisis. Even if a firm hedged its positions to limit downside, they say, word that a firm took a new position in Italian bonds—especially the very debt that led to MF Global's crumbling—could set off market jitters about the investor. That is why a number of investment firms passed on buying the bonds, according to people familiar with the situation. It also explains why hedge funds, which don't have shareholders to worry about, were more comfortable buying these bonds.

    In the aftermath of MF Global's bankruptcy filing, $4.5 billion of these bonds—mostly Italian short-term debt—was sold by MF Global's London clearing house, LCH Clearnet, according to a spokeswoman for KPMG LLP, MF Global's bankruptcy administrator in London. The bonds were sold at a discount to the market price at the time to entice investors to take a chance on them, according to people familiar with the matter.

    Today, those bonds trade at more than 96 cents, according to Tradeweb. They rose in price Monday even as investor worries over last week's measures to address the European financial crisis drove the price of longer-term Italian bonds lower. Many believe that if Italy defaults on its debts, it won't be until after next year; the European Central Bank has been buying short-term Italian debt.

    It is possible Mr. Soros hedged, or protected, at least some of his position. Mr. Soros could have done that by immediately shorting, or betting against, the same Italian short-term bonds. That is what at least one other trader who bought MF Global's Italian debt did to try to lock in a guaranteed trading profit.

    It isn't clear if Mr. Soros and his team did this maneuver, which would have reduced the paper profit of the trade, while making it safer. Mr. Soros may not have been able to hedge the full nearly $2 billion position by selling the same Italian bonds, one trader said, though he might have shorted similar bonds.

    Buying Italian debt at 89 cents and selling an equal amount at 94 cents would seem as close to a sure thing as there is on Wall Street, some traders noted. Yet, in addition to concern about risks and perception of risks, the European bonds were purchased by Mr. Corzine's firm in a complex structure with heavy leverage, or borrowed money, said people familiar with the deal.

    Potential investors understood they couldn't break that heavily levered structure if they wanted to buy the bonds, they said.

    That makes these bonds hard to unload, forcing holders to likely keep them to maturity late next year, a prospect that deterred some potential investors, they said.

    Moreover, it can sometimes be difficult to create exact hedges for big trades, forcing an investor holding the Italian bonds to bet that European leaders will successfully address their debt issues and that the Italian bonds won't fall.

    Write to Gregory Zuckerman at and Dana Cimilluca at

    So, if I am not wrong, Soros thinks that Italian short term debt is a good bet until end of 2012? Need to buy some of this stuff... :cool:
  2. Macho


    Don't the Italians have an interest payment to make on these bonds later this week.? Money they don't have!!
  3. C6H12O6


    right ! NEXT week, LOL. And they don't have the money ! Are you sure you are not talking about UK ? :D

    I keep reading the same bs on the internet over and over, it's always next week, next month, next year, but never happens.
    I'm still waiting for hyperinflation, gold bugs said it would have happened in 2009, then 2010, then...
    Waiting for Godot on this noisy and useless internet. :D
  4. zdreg


    timing is difficult. people have been talking about the death of the euro for years. governments can kick the can down the road for years.
    the next 12 months may result in the death of the euro.
  5. You are wrong - he bought 1 year Treasuries at a 5% discount, it's pretty much a pure distressed asset play. I.e. profiting from a distressed seller who needs to unload big size fast, and doesn't care so much about the price. No view on the underlying asset is implied by that.
  6. C6H12O6


    so, how is Soros investment going ?
    italian btp december 2012 have kept rising since december, they are trading today @99.7, yield 2.3%
  7. He's made an absolute killing w/these BTPS. 5y went 300bps pretty much in a straight line, since they bought it.
  8. SGalyo


    I think I agree here - a distressed seller represents the ultimate opportunity in 'buy low, sell high' practice, something Mr Soros excels at. I am also quite convinced that he has no intention of holding this stuff till Dec 2012, and has probably already worked out a means to exit as soon as he thinks he has made enough!
  9. C6H12O6


    Just like all the italians who bought their own debt at 7% yield.
    Today's auction: 1Y yield 1.96%
    10Y BTP-BUND spread about to break below 400 bps
    Is Soros a genius ? Or idiot fund managers who sold italian debt should be fired ? and sued ?
  10. Awesome. Classic Soros.

    Corzine should be in jail NOW!
    #10     Jan 27, 2012