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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 turn out to be involved about the potential of political paralysis after the election.

The overall worth of Greece’s bonds borrowed by buyers to wager on a fall in costs — often known as shorting — hit its highest stage since 2014 this week at over $500mn, in accordance with knowledge from S&P International Market Intelligence — up from round $65mn initially of the yr.

Greek debt has carried out higher than that of different European nations to this point this yr, 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.

“To date 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 buyers’ threat 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 up to now decade when this unfold has been damaging; that was final summer time, when the inversion was shortlived.

“I can see why quick cash buyers could be positioning themselves for the potential of an identical reversal,” he stated, including that if the ruling get together is unable to type a authorities after the primary spherical of voting, that might carry uncertainty for markets.

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

In the course of 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 baby, Greece’s financial efficiency is now robust, with gross home product increasing 5.9 per cent final yr. Authorities debt as a proportion of GDP hit 206 per cent in the course of the pandemic however was right down to 171 per cent final yr.

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, “buyers will not be panicking at the moment”.