Greek bonds outshine all others

Greek bonds returned almost four times as much as any other government securities this year as the nation that sparked Europe's sovereign debt crisis moved toward economic recovery after six years of contraction.

Greece's 47 per cent year-to-date return was the best of 34 sovereign debt markets tracked by Bloomberg World Bond Indexes. The second-best performer was Ireland, which exited its international bailout programme on December 15, with a 12 per cent gain. Greece may record a primary surplus next year that would qualify the country for additional debt relief under an accord with its creditors, Moody's Investors Service said on November 29.

"We are constructive on Greek government bonds," said Elga Bartsch, chief European economist at Morgan Stanley. Gross domestic product "should stabilise and then start to grow. They will get some additional help," she said.

Greek assets are winning fans as fixed-income, currency and derivatives markets show the crisis that gripped the euro area from 2009 is finally fading. With European Central Bank President Mario Draghi sticking by his pledge to backstop the region, investors are returning to Greek securities, even after the nation's financial trauma caused private bondholders to write off more than €100 billion (HK$1.07 trillion) last year.

Japonica Partners, a US investment firm that offered to buy as much as €4 billion of Greek government bonds this year, expects its holdings to surge in value next year. It paid as little as 11.4 per cent of face value for the securities it purchased and expects the debt to be valued at more than 85 per cent by next year. Japonica said it is now one of the largest holders of Greek government debt.

Further gains would also benefit Capital Research and Management, the Los Angeles-based fund manager, and Schroder Investment Management, which were among the biggest owners of the securities among asset managers and funds, according to company filings as of September.