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Pimco: Chances of a Grexit Stand at 30%


The chances of Greece ending up outside the single European currency due to an accident (Graccident) stand at 30% and if it does then that might make Italian and Spanish debt a good buy, according to the world’s biggest bond fund, Pacific Investment Management Co. (Pimco). Although, the bond fund estimated that Greece will muddle through and keep using the euro as its currency.

Still, though, there is a possibility of a debt payment being unintentionally missed by Greece and that would cause a blowout in bond spreads for the region’s other highly indebted nations, such as Spain and Italy, Pimco’s chief investment officer for asset allocation and real return Mihir Worah told reporters in Sydney earlier today. Pimco has reduced its bets on Italy and Spain to guard against that risk.

“We want to reduce our risk and have some dry powder to buy assets in Europe because we think a Greek exit will be volatile,” Worah said, adding “but at the end of the day it is not going to impact the global economy. It could be a buying opportunity if you have got the wherewithal and you are not in pain yourself.”

Moreover, the Pimco senior official explained that “our base case is that Greece stays in the Eurozone, but it is going to be messy. There is a fat tail being priced by the markets, there is about a 30% chance that there is an accident, something bad happens and Greece leaves Europe.”

The Greek government had reached an agreement with its European partners in February, which among others indicated that the two sides would strike a deal on a comprehensive list of reforms in order to disburse the remaining 7.2-billion-euro installment from the 240-billion-euro bailout program by the end of April. Eurozone officials had expected the revised list on Friday, during the Finance Ministers’ meeting, but such hopes appear to be slim.

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