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15 billion euro of the Greek debt is in the hands of hedge funds

26 November 2012 / 18:11:42  GRReporter
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Around 15 billion euro of the Greek debt is now held by hedge funds. They bought cheaply Greek bonds in the secondary market in the middle of this year, when social tensions and political uncertainty were tearing apart the country. At present, financial analysts estimate that the taking of this serious risk has been rewarded with good profits. Others argue that the speculation at the expense of Greece favoured a few people who rely on the failure of Europe.

According to the decisions taken in Brussels, the European Financial Stability Facility (EFSF) will redeem the devalued Greek government bonds as part of the policy to support the recovery programme. This will cause a new increase in the prices of Greek government bonds, which nearly doubled the profits of their investors in six months.

After the restructuring of the foreign debt (PSI) in March, private investors (local and foreign banks, insurance funds, insurance companies and private owners) were offset by new government bonds. They were worth 62 billion euro, or 31.5% of the reduced nominal value of the old bonds.

According to The Wall Street Journal (WSJ), the Third Point hedge fund paid 17 cents for one euro of the Greek debt in July and August this year. Analysts estimate that this investment will bring profit to the fund, even if the programme for Greece fails.

After the debt haircut, the state issued new bonds maturing in 2023 and 2042. Their market prices melted very quickly but now, some increase has been observed. The profits for investors who bought the loosing Greek bonds in May this year have registered an increase of 160% for the time being. The bonds maturing in 2042 were sold in the secondary market for 12 cents per euro before the June elections. At present, their price has increased up to 24 cents per euro and it is growing.

At the same time, it has been estimated that Greek banks hold approximately 16 to 17 billion of these new bonds, Kathimerini reports. They held 50 billion euro in capital put into sovereign debt when it was the time to restructure the public debt. Eurozone banks have significantly limited the Greek public debt they hold. Referring to the European Banking Authority, Kathimerini reports that banks in the eurozone hold Greek government bonds worth not more than 1.9 billion euro. This means that from December 2011 until now, banks in Europe have reduced the Greek debt they hold by 92%.

At present, insurance companies hold Greek government bonds worth 1.41 billion euro compared with 4.5 billion at the end of last year. Social security funds have also incurred losses due to the restructuring and from 17 billion euro until last year, they now hold 5.5 billion euro in Greek government bonds. This is the nominal value of the debt, which has a much lower market price at present. Individuals in Greece who have invested their savings in government bonds currently hold 600 million euro in newly issued securities.

The total calculations show that the Greek government bonds circulating in the euro area are worth 26.5 billion euro. The remaining 35.5 billion euro have been distributed among pension funds and private investors outside the eurozone, and to hedge funds specializing in transactions with sovereign debts. According to the WSJ, hedge funds believe that Greek debt is so devalued that the risk of losing money is minimal, especially if we take into account that they purchased the bonds on the cheap.

"You don't get a lot of opportunities like these," said to the financial edition Hans Hums of Greylock Capital Management - a hedge fund holding 20% of the Greek debt portfolio. Among the financial organizations that hold Greek bonds are Adelante Asset Management, Elliot Αssociates, Third Point, Dart Management, Fir Tree Partners, Och-Ziff Capital Management, York Capital, Saba Capital Management and Vega Asset Management.

Tags: EconomyMarketsHedge fundsGreeceForeign debtInvestorsSpeculationCrisisWSJ
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