Hedge Funds Greek Debt Trade

Hedge Funds Greek Debt Trade

Hedge Funds Profit as European Policy Makers Flinch

As I discussed last week here, hedge funds are making profits from bets on Greek debt, benefiting from the rise in value assigned to the struggling country's bonds.  Hedge funds wagered that European policy makers would back off their initial vow to only pay a little more than a quarter of face value to retire Greek bonds, and the fund managers were right.
Hedge funds drove up prices for Greek sovereign debt last week after determining that European finance ministers would back off a pledge to pay no more than about 28 percent of face value to retire the nation’s bonds. Money managers correctly wagered that not enough bondholders would participate at that level to get the deal done. That would put at risk bailout funds that Greece needs to stave off economic collapse.
Transactions involving Greek bonds “increased by the day” after it became clear that the buyback was going to happen, with hedge funds accounting for most of the purchases, said Zoeb Sachee, the London-based head of European government bond trading at Citigroup Inc. 
“If all goes according to plan, everybody wins,” Sachee said. “Hedge funds must have bought lower than here. If it isn’t successful, Greece risks default and everybody loses.” 
Euro-area finance ministers meeting last night in Brussels expressed confidence that Greece will pull off the transaction. The country said yesterday it would put 10 billion euros ($13.1 billion) toward repurchasing outstanding bonds with a face value of 62 billion euros. The country and its European backers agreed to pay prices ranging from an average minimum of 32.1 percent of face value to an average maximum of 34.1 percent in an auction that will run until Dec. 7, based on information in a statement from Greece’s debt agency.  Source

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