With every company or country, after issuing bonds, there are numerous investors examining if the company or country can repay the bonds. The economy of Italy has been very dependent on the Euro market to keep the bonds selling. The negotiations between Brussels and Italy continues.

In an article by Abhihav Rammarayan and Sakat Chatterjee of Reuters suggest the negotiations means that it is possible a sharp rebound or drop if the debt story improves. In Italy, the recent election elected anti-establishment group who wants Italy to spend more, while the Brussels people at the EU want less spending and more repaying of the debt.

Italy has the biggest outstanding bond market in the euro zone and futures trading has rocketed in recent months as hedge funds have stepped up their presence. Average daily turnover for short term Italian government bond have surged 40% to nearly 70,000 contracts, according to the futures exchange Eurex.

Mark Dowding of BlueBay Asset Management sees large hedge funds taking short positions through the short and long dated BTP futures.

One portfolio manager in London uses futures to take bets on Italian debt because the margining system in futures contracts makes it less capital intensive than purchasing bonds. Margin means less money down to control a larger position. If you paid cash, then the trader would have to put up the entire amount. If you are correct you make more money on margin.

Linking to dividend paying stocks, most people should not invest in futures unless they have a very large portfolio, but it is important to know why hedge managers are doing. They make money taking risks, as a dividend investor, you make money with much less risk and sometimes more reward. If a hedge fund losses money, and you earn money you have made more money for less risk. One of the best rules in investing is lose less.

There are more questions than answers, till the next time – to raising questions.