Greek government bonds have been one of the most successful investment stories in the last few years. The biggest and brightest of the U.S hedge fund industry have profited in huge sums from betting in favor of Greek bond yields. Dan Loeb’s Third Point and Seth Klarman’s Baupost Group are some of the famous names who have scooped up major profits by buying Greek bonds.

Greek Debt

Bond focused funds make a killing

As it turns out, the returns of these big money managers do not even come close to what indigenous Greek bond funds have managed this year. Bond funds of Eurobank Asset Management and NBG Asset Management have returned above 100% in the past twelve months, reports Neelabh Chaturvedi for WSJ. Of course, these bond funds only hold a fraction of what diversified hedge funds like Third Point and Baupost Group are managing, but salient point here is the margin of profit that GGBs have generated in this period, coming close to other hot investments of this year, like long Japanese equities and short yen bets.

Greek government yields closed at 8.35% on October 25, in the past 12 months yield on 10 year GGBs have contracted by 867 basis points. The average price on GGBs these days is 53 cents to the euro, still in the bearish zone. During the financial crisis investors fled from Greece, yield spreads widened and returns of credit focused investors plummeted sharply. The likes of Panos Simos of NBG Asset Management and Aris Papageorgakopoulos and John Gikas of Eurobank Asset Management, who stuck through the tough times, have been rewarded for their patience.

Both Papageorgakopoulos and Gikas have said that the period before 2012 was one of the most difficult and challenging times for them. NBG Asset Management ‘s DELOS Domestic Bond Fund is up 108% in the last 12 months and manages $114 million. Eurobank LF Government Bond Fund has gained 107% in the same period  and manages $41 million whereas Eurobank Interamerican Fixed Income Domestic Bond Fund is up 105% with $189 million under management.

Japonica Partners among largest investors in Greek debt

Very recently, U.S based Japonica Partners claimed that it has become one of the largest investors in Greek bonds. The relatively unknown fund had bid for over 10% of the sovereign’s outstanding debt, but it is not known how much Japonica actually bought in the end. Japonica’s founder,  Paul Kazarian, has said that Greek debt is massively undervalued and deserves to be rated at A+, Moody’s has rated it as junk ‘C’.

On a conference call earlier this month, he said, “Greece is one of history’s most extraordinary sovereign rejuvenations hidden in plain sight by pervasive systemic misperceptions,” adding that he expected yields to hit below 5% in 2014.

One of the long-term investors in Greek debt is the London-based Pharo Macro Fund. The $2.24 billion fund has returned close to 11% through Sep 20 of this year, which is exceptionally good in a difficult period for global macro funds. CS Global Macro Hedge Fund Index is up only 1.5% YTD.

Adelante Asset Management and Greylock Capital are also investors in Greek debt.