The Greek government wants to swap out that maturing debt for new, lower-yielding bonds and a small cash payment. But some hedge funds in London and New York that have snapped up chunks of Greece's next big maturing bond, the March 20, for around 40 cents on the euro, are balking.
There are fears the objections of some funds could make a restructuring deal difficult. Talks with Greece's creditor banks broke down on Friday over the interest rate on new bonds Greece will offer and a plan to enforce investor losses. Negotiations were suspended until Wednesday.
It is not clear just how big a force the funds actually are in the negotiations. Sources inside the hedge fund community say the amount of the €14.5 billion March 2012 issue currently held by hedge funds may not be that large
Still, cash-strapped Athens needs to treat the hedge funds as a potential threat to a deal with the clock quickly ticking down towards the deadline for a default.
The hedge funds stand to make more money if a default occurs. But they stand to gain something even without a default because of the credit protection they have purchased.
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