Hedge funds move on to euro after Greece CDS bets

LONDON (Reuters) - Hedge funds are shifting their bets on Greece's debt crisis to the euro as too many speculators have bought default protection for it to be a profitable trade, hedge fund firm Cheyne Capital said.

Chief Investment Officer Chris Goekjian said a much more interesting trade for hedge funds was to bet the euro will weaken as the EU decides how to help Southern European countries struggling to pay their debt.

"I think it's (credit default swaps) an old trade. Everybody knows about it. I don't think anybody's playing it out," Goekjian told the Reuters Private Equity and Hedge Funds Summit in London.

"There's much more interesting trades. The euro's a better story ... It's a more liquid underlying and it's probably a broader story," said Goekjian, whose firm manages $5.5 billion in assets.

The cost of insuring against a Greek default more than tripled since end-October to a record of around 420,000 euros per 10 million euros of exposure, although this has fallen back and on Monday to 336,800 euros.

"A couple of our funds have done some trading on Greece, Portugal, Spain, Ireland, the related countries ... Everybody uses CDS," he said. "We've definitely looked at it at some point and traded some of those countries."

Goekjian said betting on the euro -- which has already fallen to around $1.3520 on Monday from $1.509 at the end of last year on concerns over its future as worries over funding a bailout mount -- was a way of betting on the debt problems of other Southern European states.

"The euro's getting weaker, why's it getting weaker? Because everybody's taking the big picture and saying 'let's not talk about Greece but let's add Greece, Spain, Italy, Portugal.'

"'Let's put all that together and say Germany and the EU have got deep pockets but how much can they really help out here? And how are they actually going to resolve the fiscal situation? And if you add these together, aren't these very, very big numbers?' And hence the currency's getting weaker."

Goekjian declined to say what the firm's current positions were but said the positions it had taken recently were not large.

Speculation has also mounted that political pressure in Europe may drive regulators to take action on hedge funds buying CDS, but Goekjian said the firm had so far not come under any pressure.

"Nobody's called us up. We haven't had any public pressure one way or the other," he said.

According to one source, Germany's financial watchdog has taken steps to identify speculators in Greek debt to ensure they do not benefit unduly from any rescue of Greece.

(Editing by Matthew Lewis)