Hedge fund firm LNG Capital is betting on short-dated Greek bonds as one of a number of managers to believe the debt-laden country could end up paying back some of its bondholders at face value.
Louis Gargour, chief investment officer at the London-based firm, told Reuters he has built up positions in Swiss franc-denominated Greek bonds maturing in May next year and U.S. dollar-denominated bonds maturing in July.
The bet is that Greece, which is currently buying back some longer-dated bonds in the secondary market at a discount to nominal value in an effort to cut its debt and unlock aid from international lenders, will be relatively unconcerned about small tranches of debt with just months to run.
Gargour also hopes the fact the bonds were not issued under Greek law will make it harder for any adverse terms to be imposed on creditors holding out for a full pay-out.
"I think it's a great opportunity to make a lot of money,» said Gargour, whose LNG Europa Credit fund is up 11 percent in the first 10 months of this year.
"The logic behind the trade is that they have a very high probability of arriving at par due to the reluctance of the government to default again and restructure those bonds."
Gargour accumulated the positions at a price of between 65 and 75 cents on every dollar of face value. They now trade around 82 cents, he said.
The bonds would not be the first to be paid out at par since Greece's debt crisis began.
In May Greece performed an about-face when it paid in full the holders of one bond who had earlier rejected an offer to exchange it for lower value debt despite the government having said at the time of the offer in March that any 'holdouts' on the exchange would get nothing.
Gargour's bet also has parallels with the positions taken by hedge funds who bought longer-dated Greek bonds at knock-down prices earlier this year and have since seen huge gains.
Some of these funds are preparing to reject Greece's buyback, believing that English law offers them greater protection and increases the chance of a higher payout.
Some cite court rulings in the long-running legal battle between Argentina and holdout creditors, which have said Argentina must pay holders of restructured bonds and holdouts simultaneously.
Gargour added that there were plenty of bargains to be found in Greece, due to international investors' poor perception of the country.
"We're also long (the bonds of rail company) Hellenic Rail, which mature in December,» he said. «There are a lot of opportunities for anomalous trades that not a lot of people are focusing on, as they consider Greece a basket case."