Investors are scouring Europe for ways to make money from its tentative recovery, and one U.S. firm thinks it has found the answer -- buy Greek government bonds.
Japonica Partners said it believed Greek debt was "massively undervalued" and should be rated several notches above the junk status assigned by the big credit rating agencies.
Greece has been shut out of international bond markets since 2010, when its government borrowing spiraled out of control.
It has been rescued twice by the European Union and International Monetary Fund and was forced to restructure its debt in March 2012, imposing losses of more than 100 billion euros on private bondholders.
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But hedge funds -- such as Dan Loeb's Third Point -- and other niche investors who bought into Greek debt since the restructuring have made a killing.
Yields on Greek 10-year debt in the secondary market have plunged from around 44% in March 2012 to 9%.
Japonica's statement was greeted with derision by some investors Thursday, but the firm that made its name restructuring bankrupt Allegheny International in the early 1990s believes it has spotted an opportunity others may have missed.
It claims to have become one of the larger, if not the largest, holder of Greek government bonds, and has hired a former senior executive from Norway's oil fund -- one of the world's biggest investors -- to help manage the portfolio.
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"Greece is one of history's most extraordinary sovereign rejuvenations hidden in plain sight by pervasive systemic misperceptions," Japonica said, adding it expected yields should break below 5% in 2014.
It's a bold prediction but Japonica may have a point. Greece's headline economic data and social crisis remain as depressing as ever, and it may yet need another 10 billion euros in support.
Still, the government is on track to deliver a primary budget surplus -- stripping out the cost of servicing its massive debt this year -- and hopes to return to the bond market in the first half of 2014.
And the first green shoots of growth may be emerging. Year-on-year, Greece's economy shrank by 3.8% in the second quarter. Economists reckon that's equivalent to growth of 0.6% over the first quarter, a drop in the ocean compared with the 20% loss of output since the crisis started, but growth nonetheless.
