Greek bondholders will be forced to accept larger haircuts than agreed at last night's Eurozone debt meeting, according to Ariel Bezalel, manager of the £508m Jupiter Strategic Bond Fund.

Under the agreement reached last night, bondholders will be asked to accept haircuts of 50% but Bezalel believes this will eventually prove not to be sufficient in order to get the Greek economy back on track. He said: "This deal will reduce Greece's debt to GDP ratio from 180% to 120% but the problem is that the economy has contracted by about 10% already in the past two years and will come under further pressure given the austerity cuts being implemented and the country's inability to compete in terms of its exports with its European neighbours. I believe bondholders will eventually be forced to accept haircuts of at least 60% to 70% to reduce the debt to GDP ratio to a level that will be manageable, enabling the Greeks to get on a more sustainable footing."

"Clearly we need to see more detail on the Eurozone proposals, which we would expect to be fleshed out by the G20 meeting in November, but the market seems to be taking it well so far. It gives a big kick to the proverbial can and I would expect markets to continue grinding up for the remainder of the year."

"However, I would expect concerns over economic growth to start emerging as we move into the new year and question France's ability to retain its triple A rating."

"I would also question the leveraging up of the European Financial Stability Facility (EFSF) and whether the ?1trn mentioned will be sufficient to support sovereigns. While leveraging up the EFSF four times appears to give them decent firepower, the problem is that it is not clear where the banks will be able to raise the additional money from. It could prove difficult for them to go to the equity markets with their begging bowls given their previous assurances that they held sufficient capital and with their respective equities trading at such low levels. If they are unable to source the funds they require, they will be forced to seek capital from their governments. Clearly the issue here is that certain governments, particularly Italy, Spain and France, could find it difficult to find the funds to bail them out. France could find their AAA rating in danger if they injected more capital into their banks.  Therefore, they could be forced to go cap in hand to the EFSF for the funds, reducing the pot of cash available for sovereigns."

"In terms of portfolio positioning, I had been reducing my holdings in Australian, and Canadian government bonds ahead of this announcement and have further reduced my position in Australian government bonds today, bringing the total government bond holding to 15% from a peak level of 35%. In addition to the expectation of a Eurozone deal, I have been cheered by more stable data from the US and hints of late from the Chinese authorities that policy may be loosened. Furthermore, valuations on credit have looked more compelling. As a result, I have increased my high yield exposure from 40% to 50% and am likely to increase that a bit further. However, my high yield exposure continues to be biased towards senior secured notes, bonds secured on assets such as oil rig financing and pub securitizations and are yielding some 10% plus. I have reduced cash to around 7%, leaving me with additional firepower to invest as and when opportunities arise."

NOTE

Jupiter Asset Management Limited (JAM) and Jupiter Unit Trust Managers Limited (JUTM) are authorised and regulated by the Financial Services Authority and its registered address is 1 Grosvenor Place, London SW1X 7JJ. JAM and JUTM are subsidiaries of Jupiter Investment Management Group Limited and the group is collectively known as "Jupiter". The above commentary represents the views of the Fund Manager at the time of preparation and may be subject to change and this is particularly likely during periods of rapidly changing market circumstances. Their views are not necessarily those of Jupiter and should not be interpreted as investment advice. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given.