Greek bonds attractive, euro should be hedged

London : Greek government bonds offering an almost three percentage point premium on German bunds are attractive given the effective guarantee from other euro zone countries, but the euro currency would best be hedged, State Street Global Advisers' chief economist said yesterday.

"Greek bonds at current spread levels are a good buy — you're now looking at a good spread and an implicit guarantee ... But as an outside investor you might want to hedge euro FX exposure," Christopher Probyn said.

"As a result of what's happened, if you now buy a German bund, you have some additional exposure to Greek credit risk — that's the logical extension."

Probyn, chief economist at the Boston-based asset managers who claim $1.9 trillion (Dh6.97 trillion) under management, said he had just finished a two week trip around Europe and said the sentiment toward the euro exchange rate was poor.

But he said that was not necessarily reflecting euro break-up concerns, rather a re-rating of a still very strong exchange rate.

"The decision to form a single currency was a political one and it seems to me the decision to hold it together will be a political one as well," he said.

On the impact of European sovereign debt concerns on global markets at large, Probyn said: "The issue is being exaggerated to the downside. This is not a new sub-prime crisis."

Probyn said his outlook for global markets this year remained sanguine, with the wobble since mid-January likely to calm later in the year as sovereign debt crises ease, Chinese tightening moves are seen as appropriate and in a positive light and US bank regulation proposals get watered down.

Inflation rate

He said he expects major developed economies' growth and core inflation to remain low to moderate and that it was unlikely there would be any official interest rate rises from either the US Federal Reserve, European Central Bank, Bank of England or Bank of Japan in 2010.

"Our base case is rate rises from any of these central banks this year is highly unlikely," said Probyn.

As a result, he expects equities, bonds and commodities to all do well later this year as more money exits the safety of cash positions and money market funds.