Greek deal leaves investors fearful of two-tier bonds

Financial Times
February 21, 2012

Bond markets reacted with remarkable equanimity to Greece’s second bail-out.

Both in the aftermath of the deal announced early on Tuesday and in the long build-up to it, there have been few of the jitters that greeted the first three eurozone rescues of Greece, Ireland and Portugal.

But investors and analysts worry that in the rush to patch up Athens and show that the crisis in Greece is being contained, longer-term damage is being done to Europe’s bond markets.

“What has happened is not good for the market in the long term, but it is better than the alternative in the short term,” says Gary Jenkins, head of Swordfish Research.

The concern over how the Greek deal has been concluded centres on the question of subordination. Traditionally only the International Monetary Fund has been seen as being “super senior”.

But some investors are now worried that they may end up being junior bondholders to other entities.

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