Prudential Holds Short-Term Greek Bonds Through Selloff

Prudential Financial Inc. held on to its Greek government bonds that are due in five years or less even as the nation’s securities last week dropped the most in a year.

There’s a good chance the market has already priced in most of Greece’s bad news, according to Robert Tipp, the Newark, New-Jersey based chief investment strategist at Prudential’s fixed-income unit, which oversees $533 billion in bonds. Looking forward, the money manager may buy more Greek debt with longer maturities. The five-year bond jumped today, sending its yield down the most since the notes were sold in April, as 10-year debt also gained.

“We’ve been hanging on to the short ones,” Tipp said in an Oct. 20 telephone interview, referring to shorter-maturity securities. “Depending on how the situation shapes up in terms of the general market backdrop and politics, relative value could be attractive at the back end.”

Greece’s bonds tumbled 9.5 percent last week amid concern that the government may succeed with its proposal to sever a 240 billion-euro ($305 billion) lifeline that has kept the nation financially afloat since 2010. The plan raised questions as to whether the state would struggle to finance itself and roll back agreed fiscal reforms in the absence of supervision from creditors. The yield on its five-year notes leaped to 7.94 percent on Oct. 17, the highest since they were sold via banks in April.

In an echo of the worst days of the sovereign-debt crisis, the selloff spread, pushing yields higher from Italy to Spain. In 2012, Greece carried out the biggest-ever debt restructuring that saw investors accept losses of more than 100 billion euros. The country persuaded bondholders to swap existing securities for new bonds maturing between 2023 and 2042, resulting in a 53.5 percent writedown of their holdings.

Syriza Push

Greece’s Syriza opposition party, which advocates a “significant” writedown on Greek public debt and the annulment of reforms, would get 27.4 percent of votes if elections were held now, compared with 23.5 percent for the ruling New Democracy party, according to a poll on Oct. 18.

“If we began to get some clarity on the politics going forward, the longer-dated bonds could be deemed attractive at these levels, but it would need quite a bit more clarity,” Tipp said. “Ultimately you’re probably going to feel the Greek spread stabilize and come in, but right here it’s too early to tell exactly how far this is going to go before the market determines that prices are low enough and yields high enough to compensate riding through this process.”

Jupiter Sells

In contrast, Jupiter Asset Management Ltd., which joined the likes of BlackRock Inc. to buy Greece’s government bonds in April, last week said it has sold all its holdings of the nation’s debt on expectations that the European Central Bank won’t “launch a full-blown quantitative easing” program of securities purchases that will support the market.

Greek five-year yields fell 45 basis points, or 0.45 percentage point, to 6.73 percent as of 2:42 p.m. in London and earlier were down as much as 61 basis points. The 10-year rate fell 34 basis points to 7.37 percent, making those bonds the biggest gainers in the euro area’s sovereign debt markets.

Last week, the 10-year security’s yield climbed 147 basis points and reached 9.10 percent, the highest since January.

Trading of the debt through the electronic secondary securities market, or HDAT, was 58 million euros yesterday, ANA reported. Monthly trading volumes plunged to zero in October 2011 from a peak of 136 billion euros in September 2004.

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