RECOMMENDANARTICLE

DONATE

Reinventing Greece Home

Featured Stories

Reports from Athens

Global Press Watch

Econ 101

About us

SEP

AUTHOR

29

Hedge funds buying Greek bonds, despite risk

EUROPE, THE EURO AND GREECE NO COMMENTS

Greekwatch
A survey of press stories on Greece submitted by readers from around the world

Greece may never be able to pay off its huge debts, but its bonds, long scorned by investors, are suddenly being gobbled up by hedge funds. After a number of investors struck gold by betting against French banks, many have turned their attention to the hot yet risky euro zone trade of the moment: buying Greek government bonds that traders say are changing hands for as little as 36 cents for each euro of face value, writes Landon Thomas. Jr in the New York Times, according to this report from CNBC. Under the deal Greece struck in July with its banks as part of Europes rescue plan, writes Thomas, a substantial portion of its existing bonds are scheduled to be swapped into new longer-term securities that could be valued at more than 70 cents to the euro. If the deal closes in late Octoberassuming the latest bailout system is ratified by the parliaments of the 17 European Union countries that use the euro those who bought the bonds recently at distressed prices might in some cases come close to doubling their money.

RECENT STORIES

REPORTS FROM ATHENS

Finding small treasures in the heart of Athens By Vasiliki Mitrakos Greek Fatalism: A True Modern-Day Greek Tragedy By Michael Nevradakis Small business, small mind? By Nayia Moysidis Greeks are still Greeks by Joseph J. Skarzenski Confronting Greeces Brain Drain by Vasiliki Mitrakos If everyone ignores the problem, to what Greece will we return? by Nayia Moysidis Drilling for oil in the Aegean may help ease Greeces debt crisis By Chris Blake

But what is good for hedge funds is not necessarily good for Greece.

According to a person with direct knowledge of the debt swap, reports Thomas, about 30 percent of the investors who are expected to participate in the exchange bought their bonds after July 21. They are not the original debt holdersmostly large European banksbut more speculative investors looking to cash in on the steep fall in Greek bond prices. The debt swap, says Thomas, is expected to cover about 135 billion euros ($183 billion) in existing bonds, suggesting that various hedge funds and other investors have bought as much as 40 billion euros worth of Greek debt since July 21.

Follow us on Twitter!

Like us on facebook!

Greece had little input in setting the transaction terms, which were largely put together by representatives from the Institute of International Finance, a trade group for global bankers whose chairman is Josef Ackermann, the departing chief executive of Deutsche Bank.

SEARCH REINVENTING GREECE

Search
SHARE

Search

Defenders of the swap say that while it may not be ideal, it was the best deal that could be reached at the time, writes Thomas. If hedge funds make some money along the way, they say, that is a small price to pay for securing a contribution from the private sector. Now that analysts are actually calculating the effect of the debt swap, that contribution is looking even more modest than originally advertised. Some estimate that most participating banks will experience losses closer to 10 percent or even less on bonds that are currently trading at a discount of around 60 percent.

REINVENT GREECE ON TWITTER

Less understood, though, is how hedge funds stand to make out if the deal is completed and they swap the bonds they bought at 40 cents and below for bonds that, depending on several variables, could be worth 60 to 80 cents.

"RiG Fellow Maria Romas compares her experience in Athens + islands in #Greece on @NewsHourExtra http://t.co/AQ0iLMaz" 13 days ago "2011 @TEDxAcademy Stepping Forward taking place now http://t.co/GMD9NstJ #tedxac11 Live streaming of part 3 begins soon." 17 days ago "Keeping the conversation going: RiG fellow Vasiliki Mitrakos on @NewsHourExtra http://t.co/3UyW3neD"
converted by Web2PDFConvert.com

Those speculating in Greek bonds are taking on well-documented risks, notes Thomas, not the least of which is the possibility that the country will fail to reach a final agreement with the I.M.F. and the European

Union and will not get the next portion of money needed to avoid default.

http://t.co/3UyW3neD" 19 days ago "RiG Fellow Alexis Georgiadis writes about her experience in #Greece + w this project on @NewsHourExtra http://t.co/dQYlfgqy" 20 days ago "Read the 1st of 2 articles about our project in Greek News Online! http://t.co/cJkpeZp9" 23 days ago
F O L L O W @ R E I

But expectations are growing that Greece has done enough to secure the 8 billion euros ($11 billion) it needs next month and that the bailout mechanism to back up a longer-term rescue plan will win approval by the end of October as well.

In that case, concludes Thomas, it will not be just officials from Washington, Brussels and Athens celebrating their success in staving off a Greek bankruptcy for a while longer. So will a lot of well-heeled hedge fund investors. Excerpts from this article are cited here strictly for educational purposes. Please use the links provided to read the full article from CNBC online at: http://www .cnbc.com/id/44716167

N V E N T

0 Comments
You can be the first one to leave a comment.

Leave a Comment
Name:
*required

Email:

*required

Website:

Comment:

ADD COMMENT

Copyright 2011 Reinventing Greece Media Project. All Rights Reserved. HOME About us The Next Generation Initiative Recommend an article Join our friends and supporters

converted by Web2PDFConvert.com