Bond managers lock horns on Greek debt deal

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Long drawn out talks to help ease Greece’s debt burden will have a positive short term impact but continued failure to tackle the structural problems leaves them vulnerable to failure.

That is according to Invesco’s David Todd and ECM Asset Management’s Ross Pamphilon in response to the EU/IMF agreement to release further financial aid for Greece.

Todd, who is a Citywire A-rated manager and head of credit portfolios at Invesco, said the agreement to issue €34.4 billion in aid next month - which followed 10 hours of negotiations and multiple stipulations - was a ‘positive result for risk sentiment’.

However, Todd, who runs the Invesco Euro Short Term Bond fund, reiterated concerns which have been made throughout the sovereign debt crisis by stressing that the deal failed to address structural headwinds.

‘This deal gets very close to removing near term tail-risk by releasing funds to cover Greece’s next significant debt redemption of €5.4bn on December 14th, although the details still need to be clarified, the buy-back of privately held debt being key.’

‘Unfortunately this does not solve the structural problems that Greece faces. This restructuring of the deal - agreed only earlier this year - is due to a significant lowering of growth expectations.’

Todd also said the differing opinions expressed by the IMF and the eurozone officials, which led to the drawn out discussions, had not fully been addressed and this would rear its head further down the line.

‘We note that even now, the forecasts of the IMF and the European Commission are not aligned and there is still potential and I would expect further disappointment as austerity bites,’ he said.

‘The main opposition party, Syriza has called the deal a “Band-Aid” and I’d agree with that, although it should withstand a few baths/showers.’

Execution risk

Meanwhile, Ross Pamphilon, co-CIO and portfolio manager at ECM Asset Management, also said the near-term positivity offered by the deal could be undermined by longer term difficulties not being fully addressed.

‘While the agreement is clearly positive and serves to demonstrate the commitment on the part of the euro area towards Greece there is still a significant amount of execution risk ahead,’ he said.

‘However, this announcement removes one of the principal near term risks overhanging the market and we think the focus will now shift firmly on the fiscal cliff. We expect the European credit markets to continue to rally into year-end following the Greek announcement.’