Here Is How Bond Managers in Athens Made Money Off Greek Debt


Three bond funds in Athens carrying Greek government debt have reported returns of over 100 percent during the past year, the Wall Street Journal reports.

In a testament to the fact that at least someone is making money during the Greek financial crisis, Morningstar has announced that three major bond funds based out of the Greek capital have posted some of the highest returns seen out of any such fund across the globe. Making returns of over 100 percent in the past year, they have far outpaced the returns of some of the top bond funds for emerging markets, which made around 35 percent, and they have completely outperformed standard European bond funds, which made returns in the neighborhood of 3.5 percent.

The bond funds have posted fantastic returns by following the old adage of “buy low, sell high,” except this time it isn’t stocks that are being bought and sold, it’s bonds — Greek government bonds — to be exact. Ten-year Greek government bonds dipped below their face value for the first time in 2010 after the country requested the first of its bailout packages from international lenders. The price of the bonds continued to drop through the start of 2012 amid fears that the country would have to exit the Euro, effectively leaving bondholders with nothing.

The price of the bonds went as low as 20 cents per euro of face value, a mere 20 percent of the nominal amount to be paid back (that’s on top of the interest payments). However, the bond price has recently rebounded as it becomes evident that the country will at least be allowed to stay with the euro, surging upward to over 60 cents at the current point in time. While the bonds are still trading at far from face value, there was clearly an opportunity to make money between the time that the bonds were at their local minimum and the current price.

In fact, that’s just what the bond traders in Athens did. Realizing that a crisis was coming, many funds tried to get rid of Greek bonds after the situation became murky, but when the bonds were still going for a reasonable percent of their value. They transferred their holdings to bank bonds, which had just crashed. The bank bonds recovered value when the bailout went through, garnering the first round of profits for bond traders. Then, the fund managers bought back into Greek debt after the second round of elections in 2012 put into power a government that would pass austerity measures to re-legitimize the country’s debt. This was right when the bonds began to turn around in price.

While Greece’s bonds are still largely categorized as junk, that doesn’t mean that people aren’t making money off of them, or that there is no chance that they will be re-payed. However, as the Greek president vows not to give in to the blackmail that is seen in further austerity measures, it is clear that the country is not out of the woods yet.

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