Thursday, September 29, 2011

Greek Bonds Lure Some, Despite Risk

New York Times
September 28, 2011

Greece may never be able to pay off its huge debts, but its bonds, long scorned by investors, are suddenly being gobbled up by hedge funds.

After a number of investors struck gold by betting against French banks, many have turned their attention to the hot yet risky euro zone trade of the moment: buying Greek government bonds that traders say are changing hands for as little as 36 cents for each euro of face value.

The investors hope to book a fat profit on the expectation that the European Union and the International Monetary Fund will once again bail out Greece, fearing a global financial disaster if they do not.

Under the deal Greece struck in July with its banks as part of Europe’s rescue plan, a substantial portion of its existing bonds are scheduled to be swapped into new longer-term securities that could be valued at more than 70 cents to the euro. If the deal closes in late October — assuming the latest bailout system is ratified by the parliaments of the 17 European Union countries that use the euro — those who bought the bonds recently at distressed prices might in some cases come close to doubling their money.

But what is good for hedge funds is not necessarily good for Greece.


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