In a client forum last week, Paolo Batori, bank’s global head of sovereign strategy told that Greek bonds are “one of our top fixed-income trades of the year.”
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The point made by the team did appear a bit awkward. Awkward not because the Greek bonds are considered as junk, but because the bonds have already rallied strongly. The yield on the Greece new, post-restructuring 10-year bonds on Friday was down under 10 percent for the first time, highlighting strong demand. The rally looks even more impressive, considering the peak in yield that came after restructuring, in March 2012, was 30 percent.
Backing his point on Greek Bond, Mr. Batori told Greece will experience growth “this and next year” owing to improving macro parameters. Along with this, the chances that Greece will exit the Euro community are very less, and structural reforms currently underway will help the growth.
However, the analyst does think that another round of government debt restructuring may be expected. But this won’t affect the growth as much according to him, and the official sector would be more under fire than the private sector.
Mr. Batori says “New GGB’s total around €30 billion ($39.03 billion) or 10 percent of total debt”, which makes them too small to make a significant difference and to restructure.” The bonds are also issued under international law and are owned by hedge funds “who are more willing to hold out on restructurings, unlike the European banks that own old GGB’s.”
By the end of the year, he expects the 10-year yields to fall to 9.5 percent.
Others, who gained from Greek Debt
In Feb this year, the ECB’s reported a net profit of €998 million ($1.32 billion) for 2012, which was 37 percent more than 2011. The profit included a €555 million interest income from Greek government debt compared to €654 million a year earlier, revealed the annual accounts of the central bank.
In December, Third Point hedge fund managed by billionaire investor Dan Loeb, earned $500 million from Greek debt. Greek bonds have been one of the best performers for the funds.
Pharo Marco Funds also gained from their position in Greek debt. In November, Greek debt was the funds top gaining position.
Other funds gaining from Greek debt include Seth Klarman’s Baupost Group and Paul Singers’ Elliott Associates.