With Greece on a disputed road to recovery from a crushing economic crisis, American investors and others from around the world are snapping up Greek bonds, expecting big profits from their bets.
The news agency Bloomberg said they are led by New Jersey’s Prudential Financial and Boston’s Fidelity, along with Jupiter Asset Management, who have been building their holdings in Greek notes, just as the government – which in April floated a five-year bond for the first time in four years – is poised to do another.
Prudential, Fidelity and Jupiter have assets of more than $1.4 billion and have joined a growing queue of investors such as Invesco, BlackRock and Legal & General Investment Management owning Greek debt.
“All the different euro-zone countries have different challenges and those facing Greece are among, if not the most, serious,” Robert Tipp, the Newark, New-Jersey based chief investment strategist at Prudential’s fixed-income unit, told Bloomberg.
But there are a couple of things that Greece has in its favor in terms of the bond market. The relative value is attractive and the likely long-term course of these bonds is favorable.”
The April Greek bond for 3 billion euros ($4.1 billion) attracted offers of 20 billion euros, with a 4.75 percent interest rate insuring good returns, unless the government stiffs investors again as it did two years ago, hitting them with 74 percent losses to write down the country’s debt by $134 billion.
Since then, yields on Eurozone have fallen to record lows as the European Central Bank unveiled a package of stimulus measures to boost the region’s economy and combat the threat of deflation.
Prudential, which oversees more than $1 trillion in assets, held about 9 million euros of the 2019 notes as of April, according to data compiled by Bloomberg.
It recently shifted its position in Greek bonds to shorter- maturity debt, according to Tipp. “The better risk-reward in Greek issues” are in notes due in five years and less, and to a larger extent in the yen-denominated bonds, he said.
Ariel Bezalel, the London-based manager of the 2.1 billion- pound ($3.6 billion) Jupiter Strategic Bond Fund, said he participated in the five-year sale and recent auctions of three- and six-month Treasury bills.
“The success of the government’s new bond issue in April was a signal of confidence in the country’s rehabilitation and economic recovery,” Bezalel told Bloomberg. “Further actions by the ECB such as outright quantitative easing, although not our base case, could be a driver of significant tightening in Greek government bond yields.”
The Greek Finance Ministry is preparing an issue of new three- or seven-year bonds worth 3 billion euros to 5 billion euros this summer, Imerisia reported. That would allow the nation to tap into the lower borrowing costs.
Despite 240 billion euros ($327 billion) in two bailouts from the Troika of the European Union-International Monetary Fund-European Central Bank (EU-IMF-ECB) that began four years ago, the debt write-down, a 1.5 billion euro primary surplus and the bond sale, the Greek economy is still floundering.
Austerity measures insisted upon by the Troika have created record unemployment and deep poverty, and the lenders estimate the debt, now at 175 percent of Gross Domestic Product (GDP,) will be 122-124 percent in the year 2022. Greece also wants to restructure the debt, with speculation that could include walking away from much of what it owes the the Troika.
But investors aren’t shy and are betting they can make good money off what they expect will be a Greek recovery or continued propping-up, despite mounting political instability facing the coalition government of Prime Minister and New Democracy Conservative leader Antonis Samaras and his partner the PASOK Socialists.
“Recent performance has been very strong,” Tristan Cooper, a sovereign analyst in London at Fidelity, which oversees the equivalent of $282 billion in assets, wrote in an internal note on June 10.
“Public and private debt is still large in Greece, but with the ECB commitment we do not view this as a significant headwind, indeed Greece may yet benefit from another round of debt relief later this year.”
Fidelity increased its holdings of Greek debt this year, according to Amie Stow, a fixed-income product specialist at the money manager. Greek bonds returned 30 percent this year through June 16, the most in the Eurozone.