Soros 'makes $2bn bet' on MF Global’s eurozone debt

George Soros’ fund has purchased around $2bn of European government bonds previously held by collapsed brokerage MF Global, according to reports.

The Wall Street Journal, citing people close to the matter, has reported that Soros bought the bonds for below market value when KPMG, MF Global's bankruptcy administrator, offered leftover bond holdings to big investors.

MF Global had accumulated $6.3bn in short-term European sovereign debt before its collapse, $3.2bn of which was from Italy. The Italian position in particular worried investors and ratings agencies, and precipitated its bankruptcy on 31 October.

MF Global's eurozone debt positions were held in a trading account, its practice of marking its book to market causing a liquidity crunch at the firm when investor sentiment on Italian and other eurozone debt deteriorated sharply in October.

MF Global sold $1.5bn of its debt holdings in the days leading up to its bankruptcy filing, with the remaining $4.8bn turned over to KPMG. Soros Fund Management subsequently purchased $2bn worth of the debt, due to mature in December 2012, according to the Wall Street Journal.

Yields on benchmark Italian 10-year sovereign debt moved back above 7% this morning as markets were underwhelmed by measures emerging from the latest EU summit. However, yields then retreated again on reports of European Central Bank buying.

Soros said this summer he would stop managing money for external clients, handing $1bn back to outside investors as his firm switched to focus on managing around $26bn of Soros family money.

An estimated $600m to $1.2bn of client funds at MF Global remains missing, according to bankruptcy trustees. Former MF Global CEO Jon Corzine said at a US congressional hearing on Thursday he "simply did not know" where the remaining funds were.

The UK's Financial Services Compensation Scheme said today it is investigating the collapse of MF Global, saying it would clarify what claims are able to be made in relation to the collapse at a later date.