New York Times
February 22, 2012
Twice burned, once shy?
Maybe not for hedge funds looking to make money in Greek bonds.
Ever since last summer, when it became clear that private sector bond investors would need to take a loss to ease Greece’s debt burden, some hedge funds have been betting large sums of money on different outcomes. And for the most part, the funds have lost their collective shirt as the value of the investments sank.
Now their investment noses are twitching again, this time at the prospect of buying the cheapest Greek bonds on the street: long-term, local-law bonds that currently trade at 19 cents on the euro — a knock-down price that reflects Greece’s current condition. A number of funds of late have been assessing the debt as a potential investment, according to brokers and traders with knowledge of the matter.
Of course, the hedge funds are well aware of Greece’s woes, even after it was promised 130 billion euros in additional bailout funds this week.
But therein lies opportunity.
By buying these bonds and then swapping them for new longer-term Greek securities when the debt restructuring takes place next month, they stand to make a quick profit. Traders and analysts expect the new bonds to have a market value of 26 to 30 cents. As a bonus, the exchange would also include two-year bonds issued by the Europe Financial Stability Facility, the European rescue fund backed by guarantees from Germany, France and other euro zone countries.
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