The data seemingly puts some reassuring evidence behind the popular assertion that the situation can be contained largely to Greek banks and bonds.
Following the referendum on Sunday the S&P German Sovereign Bond Index rallied, with yields tightening 3bps.
Other heavily indebted sovereigns widened, but not by large amounts. The S&P Portugal Sovereign Bond Index sold off, with yields widening 10bps. The S&P Spain Sovereign Bond Index widened 10bps, and the S&P Italy Sovereign Bond Index widened 8bps.
To put that into perspective, the Greek Sovereign Bond Index widened 452bps when markets began trading after the vote.
“The performance of these markets indicate that systemic contagion is not a huge concern,” Heather Mcardle, director of fixed income indices said. “What is a concern, is what precedent will be set for other eurozone countries with struggling economies. If the Greek’s hardball tactics ends up giving them a degree of debt relief, or looser austerity measures, there could be incentive for Portugal, Spain and Italy to change their compliance with austerity measures. This has serious implications for the euro’s stance as a reserve currency.”
Mcardle noted that Portugal’s opposition socialist leader Antonio Costa is calling for Portugal to show ‘more solidarity’ with Greece, while Spain’s outspoken anti-austerity party Podemos is gaining momentum as it appeals to a society that has engaged in years of unpopular austerity measures.
