Prudential holds on to shorter-maturity Greek bonds amid selloff

Prudential Financial Inc. held on to its Greek government bonds that are due in five years or less even as the nation’s securities last week dropped the most in a year.

There’s a good chance the market has already priced in most of Greece’ bad news, according to Robert Tipp, the Newark, New- Jersey based chief investment strategist at Prudential’s fixed- income unit, which oversees $533 billion in bonds. Looking forward, the money manager may buy more Greek debt with longer maturities.

“We’ve been hanging on to the short ones,” Tipp said in an Oct. 20 telephone interview, referring to shorter-maturity securities. “Depending on how the situation shapes up in terms of the general market backdrop and politics, relative value could be attractive at the back end.”

Greece’s bonds tumbled 9.5 percent last week amid concern over the government’s proposal to sever a 240 billion-euro lifeline that has kept the nation afloat since 2010. That raised questions as to whether the state would struggle to finance itself and roll back agreed fiscal reforms in the absence of supervision from creditors. The yield on its five-year notes leaped to 7.94 percent, the highest since they were sold via banks in April.

In an echo of the worst days of the sovereign debt crisis, the selloff spread, pushing yields higher from Italy to Spain.

Greece’s SYRIZA opposition party, which advocates a “significant” writedown on Greek public debt and the annulment of reforms, would get 27.4 percent of votes if elections were held now, compared with 23.5 percent for the ruling New Democracy party, according to a poll on Oct. 18.

“If we began to get some clarity on the politics going forward, the longer-dated bonds could be deemed attractive at these levels, but it would need quite a bit more clarity,” Tipp said. “Ultimately you’re probably going to feel the Greek spread stabilize and come in, but right here it’s too early to tell exactly how far this is going to go before the market determines that prices are low enough and yields high enough to compensate riding through this process.”

Greek five-year yields fell 30 basis points, or 0.30 percentage point, to 6.87 percent as of 8:25 a.m. in London, after Tuesday dropping 45 basis points, or 0.45 percentage point. The 10-year rate fell seven basis points to 7.65 percent, having declined 36 basis points Tuesday. Last week it climbed 147 basis points and reached 9.10 percent, the highest since January. [Bloomberg]

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