States sell to hedge funds

Eurozone governments are increasingly relying on hedge funds to help them meet their borrowing needs, which risks leaving them vulnerable to a debt market sell-off driven by a class of investors dubbed “fast money” for their speculative approach.

With banks playing a less active part in the sovereign debt market because of pressures on their balance sheets, several countries have turned to hedge funds to sell their targeted amount of bonds, according to data, officials and bankers.

Hedge funds tend to look for quick returns on investments, which could increase the volatility of government bond markets as they face several tests of sentiment in coming months.