LNG Capital closing bets against Greek bonds on euro confidence

LNG Capital LLP, a London-based hedge fund that focuses on credit markets in western Europe, says concerns Greece could exit the euro are overdone and it’s closed some trades betting the nation’s debt will fall.

LNG started buying back 10-year government debt this week as well as Hellenic Telecommunications Organization SA (HTO)’s 3.5 percent bonds and Hellenic Petroleum SA (ELPE)’s 5.25 percent notes, said Chief Investment Officer Louis Gargour, who oversees more than $100 million of assets.

Greek bonds plunged this week after Prime Minister Antonis Samaras warned the country would default and quit the euro region should the main opposition SYRIZA party win the Jan. 25 election. German lawmakers said on Wednesday that German Chancellor Angela Merkel’s coalition government is open to discussing debt relief with Greece, signaling a more flexible stance than previously taken.

“It doesn’t look like a win for SYRIZA would herald an exit from the euro like people thought,” Gargour said in a telephone interview on Wednesday. “The time to be short is probably over, and the time to be long may be just around the corner. I don’t expect the bonds to fall much lower from here.”

While SYRIZA leader Alexis Tsipras has pledged to end German-led austerity, his party doesn’t want the euro to fail, according to an article he wrote on Wednesday in Italian newspaper Corriere della Sera.

Government bonds

Any political turmoil in Greece following this month’s election is no longer a threat to the wider stability of the euro area, Michael Fuchs, a senior lawmaker from German Chancellor Angela Merkel’s party, said in a Bloomberg Television interview on Wednesday.

The yield on Greece’s 10-year government bonds fell 37 basis points, or 0.37 percentage point, today to 10.22 percent after exceeding 10 percent for the first time since September 2013 yesterday, according to data compiled by Bloomberg. The notes yielded as little as 5.52 percent in September.

Hellenic Telecom’s 700 million euros ($826 million) of 3.5 percent notes due July 2020 rose 0.6 cents on the euro to 91.5 cents, and up from a record low for the security on Wednesday. The notes now yield 5.32 percent. Hellenic Petroleum’s 5.25 percent bonds due July 2019 rose 0.5 cents on the euro to 85.8 cents, to yield 9.19 percent.

“Bad news is already priced in and there may be some good news ahead,” said Gargour. “Should SYRIZA win, the party is likely to be more moderate than people expect.”