Hedge Fund Trade of the Day: Long Portugal, Short Ireland

One of the more unexpected ideas to emerge from the Skybridge Alternatives investor summit has been investing in bonds issued by the government of Portugal.

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Portugal, of course, is a founding member of the PIIGS, the nasty acronym for Portugal, Ireland, Italy, Greece and Spain— the countries widely believed to have the biggest debt problems in Europe.

So why go long Portuguese bonds?

"Portugal is not Greece. It's not Spain. We think it sneaks through this mess," one major hedge fund manager said (speaking on the condition of anonymity).

Pierre Lagrance of the Man Group touted Portuguese bonds as well. He said that credit traders at the Man Group were going long Portugal and shorting Irish bonds.

"Everyone thinks that Ireland is the model of austerity. But the Irish economy is really suffering," Lagrance said.

Portuguese bonds are trading at levels that indicated a recovery below that of Greece.

"Even if there's a default, we think the recovery will be above Greece's 20 percent," Lagrance said.

So there you have it: the hedge fund contrarian trade of the day. Long Portugal, short Ireland.