No matter how dreadful the headlines on Greece’s debt crisis get, strategists at some of the world’s biggest banks remain optimistic a deal will be reached -- and are making trade recommendations accordingly.
Investors should buy the dollar against the franc because Switzerland’s currency, traditionally a haven, may weaken as the risks of a Greek default abate, according to Credit Agricole SA. It says a looming U.S. interest-rate increase combined with potential policy easing by the Swiss would also play a part. Societe Generale SA recommends bonds from the euro-zone periphery because governments will “bend over backwards” to accommodate the region’s most-indebted member.
“A compromise on Greece could be drawing near going into the June 18 Eurogroup meeting,” Valentin Marinov, head of Group-of-10 currency research at Credit Agricole’s corporate and investment-banking unit in London, wrote in a note on Friday. “The franc could drop against the dollar on the back of abating sovereign debt risks and persistent policy divergence.”
Diplomatic niceties evaporated in Brussels on Thursday as European Union President Donald Tusk rebuked Greek Prime Minister Alexis Tsipras for dragging his feet on a debt agreement. The Bild newspaper reported Friday that the German government is contingency planning for a Greek default.
The political brinkmanship is little surprise to Rabobank International, which says a solution to the impasse won’t be found until “one minute to midnight.” The Dutch lender recommends selling German bunds to buy 10-year Portuguese debt.
“We remain of the view that a solution can be found, albeit one that leaves Greece remaining a thorn in the euro zone’s side going forward but at least reducing the current acute nature of the default risk,” said Richard McGuire, head of European rates strategy at Rabobank in London.
The yield on Italy’s 10-year bonds climbed versus equivalent German yields for the first time in a week on Friday amid speculation Greece was getting closer to the brink of default.
Still, even in the event of Greek non-payment, the scope for peripheral yields to widen further versus Europe’s benchmark debt is limited, according to Mizuho International Plc.
“There’s probably not as much risk in being long Italian bonds right now as people might think from looking at the Greek headlines,” said Peter Chatwell, a rates strategist at Mizuho in London, referring to a bet prices will rise. “A return of some tension in the Greek negotiations is not something that we think has significant impact.”