STOCK MARKET WATCH - Thursday, 26 January 2012

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76. Hedge Funds Bet on Profits from Greek Debt Talks

http://www.spiegel.de/international/europe/0,1518,811295,00.html

Who will bleed for Greece? For weeks, private creditors like banks and insurers have been trying to negotiate a debt rescheduling with the country without success. Even when they seem close to agreement, it remains unclear if all creditors are on board. In particular, hedge funds that own Greek bonds could have a significant interest in ignoring the results of the negotiations, instead preferring to focus on an official national default.

Bank representatives assume in the meantime that many hedge funds are not really interested in an agreement. With a controversial investment strategy they have assured themselves of profiting with either a low level of Greek bad debts, or a complete Greek bankruptcy.

At issue are Greek bonds with a total volume of about €200 billion. How many are owned by hedge funds is unclear, but the amount is estimated to be about €70 billion (including other funds).

The bondholders are expected to voluntarily give up 50 percent of their claims. Another 15 percent is to be compensated with either cash or secure bonds of the European rescue fund EFSF. The remaining 35 percent should come in the form of new Greek bonds, that will likely reach maturity in 30 years.