Armstrong buys Greek bonds yielding 14.7%

Distinction Asset Management’s Ana Armstrong has bought one-year Greek bonds yielding 14.7%, after Moody’s downgraded the country’s debt last month.

The manager of the £23m IM Distinction Diversified Real Return fund says she does not think there will be a default scenario or debt restructuring haircuts in the short term, making the 14.7% yield look very attractive.

"We think European politicians are buying time - they have been talking for the last year but no real action has been taken to reduce the debt," she says.

"However, the financing facilities of the EFSF and IMF are in place for Greece until 2013, so we think they have a good chance to lean on those financing opportunities."

Armstrong bought Greek government bonds amounting to 1.5% of DRR on 7 March, the day Moody's downgraded the debt.

The manager also bought catastrophe bonds following a sell-off after the Japan disaster, opening a 1% position in DRR. The bonds have historically yielded 9.5% and Armstrong says a yield of 10%-12% can be expected.

High oil prices, with Brent Crude at over $119 a barrel, have led the Armstrong to play the commodity via futures.

However, unlike other fund managers who tend to buy futures at the front-end of the curve to play the spot price, Armstrong has bought futures five to six months along the curve to avoid the costs of contango. This is where the manager has to sell the expiring futures contract at a price lower than the second month contract, thereby losing money.

Consequently, Armstrong has a 2.5% position in futures further along the curve and is shorting front month futures contracts.