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Pimco, Greylock see value in Greece debt after Syriza's win
[NEW YORK] Pacific Investment Management Co and hedge fund Greylock Capital Management say the election of the anti- austerity Syriza party in Greece hasn't dimmed their appetite for the country's bonds.
Syriza won after promising a writedown of public debt and an easing of policies that were imposed in return for pledges of 240 billion euros (US$270 billion) in aid since May 2010 from the European Central Bank, the International Monetary Fund and the European Commission. That helped push yields on Greece's 10-year government bonds to about 9.5 per cent, compared with 0.4 per cent for Germany.
The election has drawn mixed responses from investors. Jeffrey Gundlach, co-founder of DoubleLine Capital, said that yields will increase. Fidelity Worldwide Investment cut its holdings before the election and is staying on the sidelines as is billionaire hedge-fund manager John Paulson.
Greek bonds may offer buying opportunities in coming weeks after some initial volatility brings better entry levels, Lorenzo Pagani, managing director and money manager at US$1.68 trillion Pimco in Munich, said in a telephone interview.
Greylock's Hans Humes said he's surprised by the reaction since the election. New Greek prime minister Alexis Tsipras has promised that he'll seek to write down the value of the nation's debt, setting up a showdown with official creditors. But Syriza has made clear it won't ask private bondholders to take further losses, taking the risk of a restructuring affecting investors like Greylock off the table, he said.
"We are very enthusiastic about Greek debt," Mr Humes, head of US$870 million Greylock, said Jan 26 in an interview on Bloomberg Television, referring to the country's government and corporate bonds. The New York-based firm has invested in Greek debt since the country restructured its obligations in 2012.
Pimco and Greylock are joined by hedge fund Alden Global Capital in seeing value in Greece. The US$1.8 billion New York-based firm started a fund in December to invest in the region's stocks, warrants and sovereign debt. Mr Alden pointed to rising gross domestic product and falling unemployment as reasons to invest in Greek securities on a conference call with investors that month.
The election has so far sent Greek shares lower and bond yields higher. The benchmark ASE Index of stocks dropped 4.8 per cent, led by lenders Eurobank Ergasias SA, National Bank of Greece SA, Alpha Bank AE and Piraeus Bank SA. Three-year yields on the country's government bonds rose 1.97 per centage point, to 14.01 per cent at 1:28 p.m. London time, after jumping about the same the previous day.
"Greek yields have bottomed and started to rise," Gundlach said on Tuesday at the Inside ETF conference in Hollywood, Florida. "With the election this weekend the yields would be headed higher." For Fidelity Worldwide, which oversees US$276 billion in assets, the election hasn't created enough confidence to increase holdings.
"We do not see the election outcome as an opportunity, yet, in either corporate or government bonds," Dierk Brandenburg, sovereign credit analyst at Fidelity in London, said in an e-mail. "There remains the possibility of a compromise that balances budget cuts and structural reforms with lower debt service, however, until then political and spread volatility will persist."