Salient to Investors:

Hedge funds and distressed debt funds are buying Greek mortgage bonds as mutual funds and banks have to sell because of credit downgrades, in a bet the bonds will rebound if Greece stays in the euro.

JPMorgan said initially assigned top credits pay 22 percentage points more than benchmark rates, more than triple Spanish home-loan bonds, and 15 times Dutch mortgage debt.

Non-performing mortgage loans in Greece reached 15 percent of the total outstanding in Q4, up from 14 percent in Q3.

Home prices in Athens rose 176 percent from 1997 through end-2008. Colliers Intl sees home prices plunging if Greece leaves the euro, with fire-sale properties flooding the market. Drachma devaluation, high inflation, political instability, oversupply and falling house prices will force borrowers to stop paying their mortgages which will be higher than the value of their homes.


Michael Kurtz at Nomura sees a very large chance that the Greek elections will produce a government committed to rejecting Greece’s obligations to international creditors and be forced out of the euro bloc – sees a 50 percent chance Greece will exit the euro.

Michael Bolton of Clayton Euro Risk sees value because the market has overreacted.

Deutsche Bank said if Greece doesn’t exit the euro, senior Greek mortgage bonds would prove resilient even under the most severe scenario.

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