Small though it may be, the Greek government bonds market could under certain conditions prove to be the success story of the year, especially for those attracted by risk.
Its size, according to market professionals, is around 10 billion euros, growing to 14-15 billion euros with the addition of bank bonds and certain corporate ones (such as those of PPC or Hellenic Petroleum), and it has recently started attracting the interest of an increasing number of foreign investment managers.
The rationale behind this interest is simple: It depends on the prospect of an agreement between the government and its creditors, one way or another, in the coming weeks. In this case, investors foresee the returns on the Greek bonds soaring by at least 40 percent within a month-and-a-half. Some even expect the government bonds to reach a price of around 70-75 cents in less than 50 days from the time a deal is sealed.
“Obviously such a development would be superb, if it takes place,” one foreign administrator told Kathimerini, reminding of similar circumstances in the recent past when some bold investors reaped major capital gains in Greece.
“If you take into account that Ireland today issues bonds on a negative interest rate, you can see what it would mean for those administrators who choose Greece, betting that history will repeat itself,” said another.
Of course, it is also possible that investment managers are looking for the silver lining in a bid to convince themselves that they’ve made the right decision as such purchases entail significant risks.
The government’s negotiations with its creditors are still ongoing and there are few signs of a positive outcome any time soon. This means that any positions taken in Greek bonds may evaporate, generating fresh losses, albeit not very big ones given also the small size of the market. But, if the positive scenario proves true and fetches profits, then foreign funds will make up for the huge losses they have already suffered.
At the moment there are portfolios that acquired Greek securities at 50 and 60 cents and are now seeing them trade below 10 cents. There also are portfolios that have invested 1 billion euros in Greece and 700-800 million of that has turned into losses. Consequently, the hope of a Greek success story simply has to remain alive.
After all, it is not so long ago that some investors decided to enter the Greek bond market straight after the haircut (PSI). Many thought they were crazy to do so, but they eventually registered gains of up to 70 percent.