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* Funds stay clear of longer-term paper
As European authorities try to stave off what could be the first default of a euro zone country, some mutual fund managers are buying up Greek bonds, believing short term debt will be honoured even if more problems lie ahead.
Danish house Jyske Invest Fund Management has been snapping up small chunks of Greece's March 2012 bond, confident policymakers will do all that is necessary to ensure the embattled nation makes good on its near-term obligations.
"We have been buying recently in the Greek bond market on the consideration that a lot is priced into the market already. If you look at the Greek bond curve, anywhere between a 20 and 50% haircut is priced in," Kristian Flyvholm, head of fixed income at Jyske Invest told Reuters.
The Greek parliament approved detailed austerity and privatisation bills on Wednesday and Thursday, the latter removing the last obstacle to the country getting the next tranche of emergency funds aimed at averting an imminent bankruptcy.
The European authorities are now locked in discussions with banks and insurers, among Greece's largest private creditors, to sign them up to a voluntary debt rollover.
The cost of insuring against a Greek default was unchanged after the government won Wednesday's vote, and ING models showed investors still expect to receive only 60 percent of the face value of three-year Greek bonds they hold to maturity.
"Our assessment of the policy environment is one where we consider that policymakers aim to do whatever they can to pay back all the maturing bonds especially at the front end of the curve," Flyvholm said.
His Favourite Bonds funds — comprised of international and Danish versions – invest in 50 to 60 global bonds, and have built up their exposure to Greece into a top four holding, or almost 3%, of the funds' 114 mln euros in assets.
STAYING SHORT
Across the industry, mutual fund exposure to Greece is relatively small, with those registered for sale in Britain holding 500 mln pounds of debt at the end of May, according to data from Lipper, a Thomson Reuters unit.
Unlike some banks that keep sovereign debt in hold-to-maturity portfolios, funds are generally required to mark-to-market the value of their holdings, meaning many sold down their exposure to zero as the crisis deepened.
But some managers now see value through all the bad news circling the nation.
These recent fund purchases in the secondary market are largely focused on short-dated maturities, as investors are less confident Greece, labouring under a debt pile of some 340 bln euros, will be able to avoid an eventual default.
Tim Haywood, business-unit head for fixed income at Swiss asset manager GAM Holdings , is another manager doing just this.
Three of his funds — the Julius Baer Absolute Return, Defender and Plus Funds — had already bought more than 77 mln pounds of mainly short-dated Greek exposure by the end of February, Lipper data shows.
He continues to see opportunities, though he remains wary of debt falling due in the longer term.
"To tempt me into new bonds rather than just take the redemption proceeds out of the old ones, I'm going to need some new, very persuasive arguments about the ability to repay future coupons and principal," he said, referring to rollover plans.
