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Hedge Funds Greek Debt Crisis

Hedge Funds Greek Debt Crisis

How Hedge Funds Have Traded on the Greek Debt Crisis

While several hedge funds had their eyes on Greek bonds as a way to make a big return from the country's debt problems, there appears to be few hedge funds really profiting from the affair after the bond restructuring that was recently announced.  The Financial Times has more on how hedge funds played the Greek debt crisis and how few hedge funds actually gained in the process.
So where were all the hedge fund “sharks”?

One clue lies in the data on the total net notional value of CDS written against Greek bonds. A value of zero would indicate that, overall, the credit default market – where CDS are traded as protection against such an event – was balanced, with an equal value on contracts betting for and against default.

The total net notional CDS on Greek bonds has been on a steady downward slide for the past two years, having peaked in late 2009. In aggregate, the CDS market has gone from being directionally short Greece, to being more neutral. Part of the reason would appear to be that hedge fund managers, who had driven the speculative spike in CDS positions in 2009, began to close their shorts in 2010 and 2011 by either buying Greek bonds, or else writing CDS protection to new, less far-sighted investors who had suddenly woken up to their over-exposure to potentially toxic peripheral eurozone debt.

More recently, however, it has been market volatility that has kept hedge funds away. Source

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