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Monday, 29 October 2012

Government bonds of Greece- a good investment opportunity?

One of the most successful investment strategies for the last time it was investing in government bonds of Greece, as evidenced by the success followed this strategy hedge funds, says the U.S. The Wall Street Journal.

The publication notes that a variety of hedge funds, including Third Point LLC, Greylock Capital Management, Fir Tree Partners and Appaloosa Management LP, have been actively buying Greek government bonds after restructuring debt of the country in March, when the bonds are more than 200 billion euros were exchanged for securities with longer periods and face value of 60 billion

Clients of these funds are unlikely to be satisfied with their choice as the data Tradeweb, on the basis of trading on Monday the yield on 10-year government bonds in Greece amounted to 16.53%, the rate slightly higher against the level on Friday, but fell by more than three percentage points from the beginning of months. In May the yield of these securities exceeded 30%.
По итогам торгов в понедельник доходность 10-летних гособлигаций Греции составила 16,53%, показатель чуть вырос по отношению уровню пятницы, однако упал более чем на три процентных пункта с начала месяца
However, it is very comforting for Greece, which even the most optimistic projections could return to international debt markets, not earlier than after a few years, said "Finmarket" .

Neither the economic nor the political problems of the country, where the third place at the last election in parliament party with quasineonazi ideology, nor the fact that the market for Greek government debt is relatively small (only 20% of the total of 300 billion euros is from private investors, while the rest belong to the ECB, the IMF and the governments of the euro area) and volatile, did not deter hedge funds.

"These opportunities do not roll on the road," - said the head of Greylock Hyums Hans, adding that about 20% of his fund is invested in Greek government debt.

According to one of the investors, Third Point has recorded hundreds of millions of dollars of unrealized profit after buying pools of government bonds of Greece, in July and August.

The source said that the fund bought the bonds at a price of 17 cents per 1 euro nominal value (i.e, at a discount of 83% of face value).

However, another source familiar with the situation in Fir Tree, said that the fund was buying Greek government debt in the summer at a price of 12-20 cents, with the company's management expects that soon the price of securities will rise to 35 cents.

Greek government bonds maturing in 2042 before the June elections were trading at a discount of 88% of face value (ie the cost to 12 cents per 1 euro nominal value), now the price has doubled.

The high profitability of investments in Greek sovereign debt inevitably coexists with very high risks: first, the value of these assets subject to sharp and unpredictable fluctuations - in May, they have fallen in price so much that it took several months to get their return back to the level recorded before the restructuring .

In addition, there is no assurance that the government Antonis Samaras, who does his best to convince private investors and international lenders in readiness to reform the economy and pay off all the debts will stay in power long enough, especially considering that the victory came to him only after repeated elections.

The greatest danger lies in the fact that the rules of the game are still determined by the European policies that have forced investors to go in the spring to charge nominal Greek government bonds and the extension of maturities of securities, but these conditions are not distributed to the assets on the balance of the ECB.

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