Italy exits Morgan Stanley derivatives bet

The Italian government has paid $3.4bn to exit a bet on interest rates, according to Bloomberg.

The transaction comes at a time when the European Commission is scrutinising the rules governing the use of derivatives, with a view to improving transparency in the sector.

In January, Morgan Stanley had said it had cut its ‘net exposure’ to Italy by $3.4bn. However, said Bloomberg, “it didn’t tell investors that the nation paid that entire amount to the bank to exit a bet on interest rates”.

A source with direct knowledge of the Treasury’s payment told Bloomberg: “It was cheaper for Italy to cancel the transactions rather than to renew.”

The cost is about half the amount to be raised by Italy’s sales tax increase this year. Italy, with record debt of $2.5trn, has lost more than $31bn on its derivatives at current market values, according to data compiled by the Bloomberg BriefRisk newsletter from regulatory filings. 

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