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29 Hedge funds buying Greek bonds, despite riskEUROPE, THE EURO AND GREECE NO COMMENTS

Greece may never be able to pay off its huge

debts, but its bonds, long scorned by investors,

are suddenly being gobbled up by hedge

funds. After a number of investors struck gold by

betting against French banks, many have turned

their attention to the hot yet risky euro zone trade

of the moment: buying Greek government bonds

that traders say are changing hands for as little as

36 cents for each euro of face value, writes Landon

Thomas. Jr in the New York Times, according tothis report from CNBC.

Under the deal Greece struck in July with its banks as part of Europes rescue plan, writes Thomas, a

substantial portion of its existing bonds are scheduled to be swapped into new longer-term securities

that could be valued at more than 70 cents to the euro. If the deal closes in late Octoberassuming

the latest bailout system is ratified by the parliaments of the 17 European Union countries that use the euro

those who bought the bonds recently at distressed prices might in some cases come close to

doubling their money.

But what is good for hedge funds is not necessarily good for Greece.

According to a person with direct knowledge of the debt swap, reports Thomas, about 30 percent of theinvestors who are expected to participate in the exchange bought theirbonds after July 21. They are not the

original debt holdersmostly large European banksbut more speculative investors looking to cash in

on the steep fall in Greek bond prices.

The debt swap, says Thomas, is expected to cover about 135 billion euros ($183 billion) in existing

bonds, suggesting that various hedge funds and other investors have bought as much as 40 billion

euros worth of Greek debt since July 21.

Greece had little input in setting the transaction terms, which were largely put

together by representatives from the Institute of International Finance, a

trade group for global bankers whose chairman is Josef Ackermann, the

departing chief executive of Deutsche Bank.

Defenders of the swap say that while it may not be ideal, it was the best deal that could be reached at the

time, writes Thomas. If hedge funds make some money along the way, they say, that is a small price to

pay for securing a contribution from the private sector. Now that analysts are actually calculating the effect

of the debt swap, that contribution is looking even more modest than originally advertised. Some estimate

that most participating banks will experience losses closer to 10 percent or even less on bonds

that are currently trading at a discount of around 60 percent.

Less understood, though, is how hedge funds stand to make out if the deal is

completed and they swap thebonds they bought at 40 cents and below

for bonds that, depending on several variables, could be worth 60 to 80cents.

Those speculating in Greek bonds are taking on well-documented risks, notes Thomas, not the least of

which is the possibility that the country will fail to reach a final agreement with the I.M.F. and the European

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Union and will not get the next portion of money needed to avoid default.

But expectations are growing that Greece has done enough to secure the 8

billion euros ($11 billion) it needs next month and that the bailout mechanism

to back up a longer-term rescue plan will win approval by the end of October

as well.

In that case, concludes Thomas, it will not be just officials from Washington, Brussels and Athens

celebrating their success in staving off a Greek bankruptcy for a while longer. So will a lot of well-heeledhedge fund investors.

Excerpts from this article are cited here strictly for educational purposes. Please use the links provided to

read the full article from CNBC online at: http://www.cnbc.com/id/44716167

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