Bets against Greek bonds hit highest level since 2014

Hedge funds have been upping their bets in opposition to Greece’s authorities debt because the nation heads to the polls this weekend, as they develop into involved about the potential for political paralysis after the election.

The overall worth of Greece’s bonds borrowed by traders to wager on a fall in costs — often called shorting — hit its highest stage since 2014 this week at over $500mn, based on information from S&P World Market Intelligence — up from round $65mn firstly of the 12 months.

Greek debt has carried out higher than that of different European international locations up to now this 12 months, and final month S&P modified its outlook for the nation from secure to constructive, placing it on the cusp of regaining the funding grade score it misplaced in 2010.

“Greek authorities bonds have outperformed their Eurozone friends for some time so the construct in shorts goes in opposition to the prevailing [bullish] narrative in Greece,” stated Antoine Bouvet, head of European charges technique at ING.

“Thus far the prospect of the election has not slowed the efficiency of bonds however we’ll should see after the outcomes.” 

The hole or — unfold — between the yields of Greece and Germany’s 10-year debt — a key gauge of traders’ danger evaluation — has narrowed from greater than 2.8 share factors final October to round 1.5 share factors this month.

The benchmark Greek 10-year bond is buying and selling at a yield of 4.04 per cent, decrease than the 4.3 per cent yield for Italy, which has funding grade standing. Yields fall when costs rise.

Richard McGuire, head of charges technique at Rabobank, famous that there has solely been one earlier event prior to now decade when this unfold has been detrimental; that was final summer season, when the inversion was shortlived.

“I can see why quick cash traders can be positioning themselves for the potential for an analogous reversal,” he stated, including that if the ruling social gathering is unable to type a authorities after the primary spherical of voting, that might convey uncertainty for markets.

Regardless of the sharp improve in shorting volumes, traders be aware that the general scale continues to be a really small proportion of complete Greek debt, which stands at round €400bn. Most of that is held by official our bodies moderately than traders.

Throughout the Greek debt disaster a decade in the past, brief positions in opposition to the nation’s bonds peaked at greater than $15bn. 

After spending years as Europe’s drawback little one, Greece’s financial efficiency is now sturdy, with gross home product increasing 5.9 per cent final 12 months. Authorities debt as a proportion of GDP hit 206 per cent through the pandemic however was all the way down to 171 per cent final 12 months.

Professor Costas Milas, a professor of finance on the College of Liverpool, stated hedge funds could also be upping wagers in opposition to Greek debt owing to “nervousness and second ideas” forward of the election however given yields are decrease than Italian debt, “traders will not be panicking in the present day”.

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