Lending money to Greece may not be the soundest financial decision that could be made in today’s world. The country is not exactly known for its financial stability, and it’s already defaulted on some bonds in recent years. Greek bonds do have some fans out there, however, and Japonica. The U.S. firm hit headlines recently after offering to purchase around $5.5 billion of Greek debt.
Japonica says that it expects the yields on Greek bonds to hit 5 percemt next year. The investment group will not reveal how much of the country’s bonds it actually owns, but it says that it is one of the largest holders of the securities. The firm paid as little as 11.4 percent of face value for the country’s government debt, according to Bloomberg.
Greek optimism at Japonica
Japonica’s founder Paul Kazarian is optimistic about Greece, and that’s astonishing to most investors. In a conference call today, he spoke about the debt buy publicly for the first time. Kazarian said that when dealing with Greece pricing has been “almost certainly wrong, particularly in comparison to euro-zone peers.”
Japonica expects Greek debt to be worth as much as 85 percent of face value next year. Yields will hit around 5 percent some time next year. Yields have been following for some months and sat at around 9.25 percent on today’s market. 2009 was the last time the company’s debt yielded 5 percent.
Value investing in Greek bonds
Investors are often misled about the fundamental value of a security by the market’s reaction to it. Anything Greek appears to be bad to some investors because of the tainted nature of the country’s title. That’s not always true, however. When it comes to Greek bonds there are not too many investors outside of Japonica who would recommend a big bet.
That’s not necessarily a misconception of the situation Greece finds itself in, however. The country has massive unemployment and a political system that is not quite working the way its supposed to. The government’s debt is still a problem and its inability to function without repeated intervention from the Eurozone and IMF is not a good sign of financial health.
Japonica has managed to buy up a security that is valued at a low level compared to the numbers written on the front. Greek debt might just be tainted, and Japonica might have found itself a valuable opportunity. Whatever way the trade works out, it is a courageous one.
