Armstrong: Greek law poses threat to investors

Mr Armstrong holds a Greek government bond maturing on March 20, part of a ¤14.4bn (£12bn) maturity at the centre of protracted negotiations between Greece’s leaders and eurozone officials.

He said that, as almost all Greek debt issuance has been subject to Greek law, the country’s government will likely attempt to force any bondholders who do not voluntarily accept an expected 70 per cent haircut to take losses on their holdings as part of a private sector debt swap.

“We may get lucky and not be forced into this as there may not be enough time to pass the law before the March 20 deadline, but passing the law seems inevitable,” he added.

Eurozone ministers will meet today to discuss the ¤3.3bn worth of cuts made by the Greek government in order to meet the terms of a proposed ¤130bn bailout. Mr Armstrong said that in spite of the repeated delays to the approval of the cuts the bailout would be approved, paving the way for the private sector debt swap deal.

The manager held Greek debt throughout much of 2011, including a bond maturing in August which paid out in full. He also held a short position in European banks, which he said was an “indirect hedge” against the Greek debt holdings.

This short returned 40 per cent before he unwound it in July, gains which he said covered losses which may arise from the remaining Greek bond.

Elsewhere in his funds, Mr Armstrong has sold holdings in Italian government debt, having made 17 per cent out of the trade. He has also taken up a short position in German bunds, a position which he believes “is not going to have much downside”, particularly if the eurozone’s strongest economy is forced to shoulder debts of several peripheral eurozone members.