A bet by insurer Allianz in 2012 to back German life and health liabilities with long-duration Italian government debt paid off handsomely in recent years but is looking risky again as the bonds plunge in the wake of the US presidential election.

Italian government bonds with maturity above 15 years returned -7.5% in the first two weeks of November, the second worst-performing long-dated Eurozone bonds after Irish bonds which lost 8.7%, according to data from Markit iBoxx.

The year-to-date performance of Italian government bonds in the same maturity range was -5.6%, the only negative-performing large Eurozone borrower this year. This negative performance is striking because the European Central Bank has purchased €188 billion of Italian government bonds in 2016.

Allianz started building its portfolio of long-dated Italian debt in 2012, betting that concerns about the breakup of the Eurozone were overstated. A rebound in the value of the bonds resulted in a €5.5 billion unrealised gain on Allianz’s portfolio of Italian bonds, giving a fair value of €28.9 billion at the end of 2015.

Allianz said in 2013 that it was buying Italian bonds with maturity of 26 years, along with long-dated French and Austrian debt, to back the liabilities of its German life and health subsidiary. Allianz also sold shorter-dated Italian bonds owned by its Italian subsidiary, to increase overall portfolio duration.

Since 2013, Allianz has continued to buy long-dated government debt as part of a duration-lengthening strategy and an attempt to increase investment yields. It also used interest rate swaps and swaptions in add duration, with a notional amount of €83 billion.

If one takes as a proxy for Allianz’s portfolio the universe of Markit iBoxx Italian government bonds with a maturity of greater than 15 years (or an average maturity of 24 years), then Allianz’s €28.9 billion portfolio would have lost €1.6 billion this year as a result of market moves. A portfolio of Italian bonds with maturity greater than 10 years (with 19 year average maturity) would have lost €600 million as of 14 November. Allianz says that its Italian government bonds have an average maturity of less than 24 years, without providing further information.

These price swings are not enough to wipe out the unrealised gains on the portfolio since 2012, but they highlight the risk of a strategy backing German liabilities with assets issued by a peripheral Eurozone country. The forthcoming Italian referendum on constitutional reform may lead to further volatility in the country’s bonds.

Other bonds in Allianz’s portfolio are still ahead this year. Allianz owns €39 billion of French government bonds, including unrealised gains of €8 billion at the end of 2015. Since then, long-dated French sovereign debt has returned 8%, according to Markit iBoxx data. In its latest quarterly results, Allianz reported €7 billion in unrealised gains in 2016. Allianz says that it includes risk charges for Italian and French bonds in its Solvency II capital model.

An Allianz spokeswoman said, “We invest in BTPs and OATs mainly for ALM reasons, obviously taking also the investment risk into account. BTPs and OATs return clearly higher current yields than for example Bunds. Additionally, we bought most of those investments many years ago at much higher yields than today. The BTP performance since inception is outstanding. Even after the recent yield increase we have very nice unrealized gains on those positions.”