Business Irish

Monday 20 November 2017

Alterra bucks the trend by dumping its Irish bonds

Nick Webb

Nick Webb

Greek deal poised on a knife-edge

US and IFSC-based investor Alterra Capital has bucked the trend of buyers steaming in to pick up Irish bonds by offloading its entire holding last month.

"We did make an opportunistic play on $30m of Irish bonds after they had been hit pretty hard," Alterra president and chief executive Marty Becker told investors last week. "We've sold those bonds since January 1 at a profit."

He described the firm's bond dealings as "just an in-and-out play".

The €2bn-valued reinsurance giant is one of the few to have banked any profits from the incredible surge in Irish bonds over the last year. Investors are sitting on gains of up to 35 per cent on Irish bonds which had been hammered in the expectation that Ireland would default.

Earlier this month, it emerged that Michael Hasenstab, a trader at California-based fund manager Franklin Templeton, had made a near-€2bn bet on Irish bonds in the expectation that the economic situation here would improve. Hasenstab's fund at Franklin Templeton hiked its holding of Irish bonds from zero in May 2011 to $685m in August and $2.49bn by the end of November. This was bang in the middle of huge uncertainty here when most investors were donning tin helmets as Irish government debt was downgraded to junk by ratings agencies and the euro threatened to collapse.

Hasenstab's trade was seen as a massive vote of confidence in the turnaround of the Irish economy. The attraction of Irish government debt for investors has been backstopped by the credit rating actions in recent weeks, as both S&P and Fitch decided to reaffirm Ireland's BBB+ investment grade status, while blasting other countries with a salvo of downgrades.

While the revelations of the Hasenstab stake have been seen as a positive, it does create a serious overhang in the Irish bond market. Traders have warned that the prices of Irish bonds will tank if he unravels his position. Any major transactions have a large impact on prices in such a minor market. With bond yields falling below 7 per cent for the first time since 2010, and Government plans to re-enter the bond markets later this year, any uncertainty or potential issues will need to be ironed out by the NTMA.

The calamity unfolding in Greece may also have a huge impact on prices of sovereign bonds. A potential chaotic default remains on the radar as €14.5bn of Greek debt repayments fall due on March 20. Late last night European bureaucrats, technocrats and officials were desperately trying to prevent a deal on Greece from unravelling ahead of a key meeting of finance ministers in Brussels tomorrow.

Last week, the euro rose to a two-month high against the dollar on the expectation that a deal to bail out Greece would be forced through.

"It's simply a reversal of an overly pessimistic view on the eurozone from earlier in the week," Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York told Bloomberg.

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