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- Bond investors in Greece are reaping the rewards of investing in junk-rated and illiquid debt.
- Greek bonds have returned 20% this year, the best performance in the eurozone.
- This weekend’s elections may also help bear fruit in bringing a more market-friendly government to power in Athens.
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For bond investors, Greece has been the eurozone’s best country to invest in as the country’s bonds have returned 20% this year, Bloomberg reported.
This also looks set to grow into the weekend, as snap-vote elections could bring the possibility of a pro-business government as well as help from the European Central Bank.
While the debt is junk-rated and illiquid, Alberto Gallo, a money manager in London at Algebris Investments, told Bloomberg that the Greek economy had “turned the corner” and that “elections could pave the way for a more pro-reform government,” which reportedly favors bonds maturing in five years and further.
Time for change
Ten years ago the Greek economy was the worst performing in Europe. Had it not been bailed out, the country risked crashing out of the eurozone.
Yields skyrocketed over fears that Greece would become bankrupt. Since then the country has had €300 billion in foreign aid to help its economy recover.
The International Monetary Fund, the European Central Bank, and the European Commission imposed strict austerity on Greece in return for the bailout funds. Christine Lagarde, the IMF head who has been nominated to take over as head of the ECB, caused outrage at the time by saying Greeks do not pay their taxes.
Now, things are looking up. The center-right party New Democracy is topping the polls ahead of Sunday’s election, expected to get 40% of the vote, according to Bloomberg.
The incumbent Syriza party is trailing with 28%, though Prime Minister Alexis Tsipras can be hugely credited with Greek’s turnaround in fortunes, through macroeconomic orthodoxy.
“We would expect a New Democracy government to be more positive for markets than a government coalition,” Bank of America strategists led by Ruben Segura-Cayuela said in a note.
He added: “We see more potential ahead as the search for yield extends.”
The country has returned to growth, with the IMF forecasting a 2.4% gain in gross domestic product this year, the Financial Times reported.
Despite a turbulent decade for the Mediterranean economy, bond investors could yet profit from it.
Goldman Sachs Global Investment Research
