Big gains for hedge funds from bonds

By Ilias Bellos

Investment funds are eyeing the plan for Greece to be lent money to buy back the bonds it issued as part of the debt restructuring program, known as the Private Sector Involvement (PSI), in March.

In total the new Greek bonds issued after the PSI have a nominal value of 62 billion euros, of which some 15 billion are now in the hands of hedge funds. The latter bought the new bonds at prices that were considerably lower than the current ones, intending to sell them for a profit ahead of the bond buyback scheme under discussion being put in place.

Investment funds intensified their Greek bond buying at the end of June, when the new government debt had a price of 14.26 cents per euro. Today they are traded on the secondary market at a level of 26 cents per euro, which is more than a 100 percent increase within six months, as the price they had at the end of May, when the country was suffering from a huge political uncertainty between two general elections, had been 12.90 cents/euro.