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There are no trillion-dollar hedge funds out there. This makes it difficult for them to compete in European sovereign debt auctions with the European Central Bank, which has €1.85 trillion just to buy those bonds. Difficult, but not impossible; these are hedge funds, after all, and their job is to figure out how to make money on anything. So let’s say they want a bigger piece of, say, a €10 billion European Union issue than they’re likely to get with an honest bid, given that such things receive many times more offers than there are for actual bonds. Why not just place more bids than you actually want? Far more, in fact? Why not put in bids for more money than you actually have, since there’s no chance you’ll actually be called on to make good?

Why not? Well, because it really pisses the people selling the bonds off, that’s why.

France has seen the biggest change, with this month's sale of 30-year debt receiving 28 billion euros in bids, versus 75 billion euros seen at January's 50-year deal.

"We tell (hedge funds) it will not be by the size of their order that the allocation will be determined. On the contrary, the bigger the number, the lower the allocation will be…."

Italy has not changed its allocation policy, but "has intensified" discussions with hedge funds, asking them to submit realistic orders, debt management chief Davide Iacovoni recently said. Spain's Treasury, which has a cap on orders, did not respond to requests for comment.

Outsized European bond orders shrink after hedge fund crackdown [Reuters]

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