Greek-Bond Champion JPMorgan Says Buy Debt as Pessimism Overdone

JPMorgan Chase & Co. is challenging the consensus view on the first quarter’s worst-performing developed-nation sovereign bonds.

While Greece is locked in negotiations over its funding, the market is overly pessimistic on the nation’s debt and long-term investors should buy its 30-year securities, according to Aditya Chordia and Nikolaos Panigirtzoglou, rates strategists at JPMorgan in London.

“We see a wide range of potential scenarios for the second quarter of the year,” Chordia wrote in an e-mailed report dated yesterday. “Our inclination is that the more conciliatory tone among the parties involved is correct, and Greece will present and approve a set of reforms that will unlock further funding. The potential upside on the trade is significant, but so is the downside and volatility.”

Greek government debt lost 9.4 percent in the first three months of the year, the biggest drop among markets tracked by Bloomberg World Bond Indexes. The securities tumbled after the election of a Syriza-led government created a standoff over the terms of the 240 billion-euro ($258 billion) rescue provided to Europe’s most-indebted state.

The brinkmanship led UniCredit SpA’s chief global economist, Erik Nielsen, to say on March 15 that he was “throwing in the towel” on Greece, while two days later Morgan Stanley strategists removed Greek bonds from their list of top trades for 2015. Both banks cited an increased risk that Greece will exit the euro area.

Dimon’s Endorsement

Greece’s benchmark 30-year bonds fell for a third day, pushing the price down 0.34, or 3.40 euros per 1,000-euro face amount, to 47.295 at 3:07 p.m. London time. The price touched a high of 70.585 a year ago, from little more than 10 in June 2012, based on closing-market data.

The yield on the 3 percent securities due in February 2042 climbed above 9 percent on Wednesday.

JPMorgan’s recommendation was made in its “Trade opportunities for long-term investors” quarterly report, which is intended for investors who have a two-year investment horizon. Chordia already advised buying the 30-year debt in January.

JPMorgan has supported Greece before. It was among the syndicate of banks that helped the nation end its four-year hiatus from markets with a sale of five-year notes in April 2014. Prior to that, Chief Executive Officer Jamie Dimon hosted a meeting with investors at the bank’s headquarters in Manhattan, according to two people with knowledge of the matter.

And buying the bonds can be lucrative. Greek debt returned almost 200 percent since the March 2012 restructuring, according to the Bloomberg Greece Sovereign Bond Index.

Cash Levels

For now, market metrics show Greece is in danger of sinking under the burden of its debt, putting repayments of about 500 billion euros owed to European taxpayers, rescue funds, banks and bondholders in jeopardy.

The nation may seek to delay a 450 million-euro payment to the International Monetary Fund due on April 9 if it doesn’t receive financial aid by then, Spiegel Online reported, citing an interview with Interior Minister Nikos Voutzis.

With the country running out of cash, credit-default swaps insuring against losses on $10 million of Greek government debt for five years cost $4.7 million upfront and $100,000 annually, signaling a 75 percent probability of default, according to CMA. That’s up from $3.6 million in advance and a 63 percent chance of default at the start of the year.

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