Well, I’m shocked. I wrote yesterday that Greece had a stronger position than its European funders and private holders of its outstanding debt, but I theorized that it would use this position to force hedge funds to eat losses. It turns out that Greek leaders (or their masters in Brussels) are savvier than I estimated. Greece obviously has the backing of the European finance ministers to make an extremely generous buyback offer to its debt holders. Offering 30-40% face value is way more than a lot of hedge funds paid for this distressed debt, so the ones that agree first will walk away with the largest payout. Holdouts risk taking any subsequent offer that will far less generous, or eating losses on defaulted distressed sovereign debt. This is clearly an attempt to quickly clear the market of any obstacles to further bailouts.
Hedge funds that got in late by paying 29% in late summer can lock in a 35% sale price, for a total appreciation of about 20% more than what they paid a few months ago. The annualized gain on this kind of deal can be anywhere from 60%-80% depending on how much they paid and how long they held. That is a whopping incentive to sell now and not wait for the EU/IMF to backstop a second buyout round.
Europe’s elites are indeed very serious about saving the euro, even to the point of throwing more money at private bondholders just to make them go away.