Hedge funds bet on Greek debt default, Germany “Can’t Confirm” Hedge Fund Clampdown
Author: cmccaffrey | Filed under: Greece
In response to Greece’s economic troubles, this month hedge funds have raised their bets on Greece’s economic woes by shorting its bonds or buying default protection. According to the New York Times, the country has been in economic turmoil since the new Socialist government revealed in October 2009 that the budget deficit would hit 12.7% of the GDP (three times the E.U.’s limit and twice and big as had been anticipated).
The Times also cited figures from Data Explorers that suggested rising short positions in Greek Sovereign bonds, indicating funds have either been directly shorting bonds or buying credit default swaps. Although some anecdotal evidence suggests that some investors have cashed in after recent gains, the numbers suggest otherwise: short positions have risen from 8.24 at the end of December to 9.58 at the end of January to 9.82 now, according to Reuters.
Many hedge funds have also acted to hedge their exposure to the euro, which sank to a nine-month low against the dollar last week. Even funds without direct exposure to Greece have been attempting to protect their portfolios against collateral damage in the currency or credit markets, as worry with regard to Greece’s ability to address its mounting debt have grown.
Concern over Greece’s ability to repay its debt has shaken confidence in the euro itself and incited E.U. leaders to issue a series of vague promises that they would take united action if need be to salvage their single currency. One such action may include enacting legislation to curtail hedge fund speculation against the euro. A Bloomberg report released this morning said that Germany’s government couldn’t confirm any decision to take action against hedge funds in order to protect the euro. However, German Finance Minister Wolfgang Schaeuble said that one action being considered is limiting derivatives trading to transactions that serve an “economically sensible hedging purpose”– whatever that may mean and who gets to decide that remains to be seen.
The German Finance Ministry refuses to confirm the report and insists that no decisions have been made yet concerning any particular financial instruments.
Tags: CDS, Debt, E.U., Greece, Hedge Fund, Legislation, Wolfgang Schaeuble
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