Marginal bond yield rise the sole sign of unease in wake of no vote

Bond markets reacted passively to Greece’s decision to emphatically reject its creditors bailout proposals yesterday, with Irish bond yields climbing only marginally.

Early morning trading saw Irish yields fall, setting the country apart from other periphery nations, though the situation did not hold as the day progressed and the Irish 10-year bond yield closed up less than four basis points at 1.6%.

While the early fall in yields offered a welcome reminder that Ireland continues to move away from the likes of Portugal, Italy, and Spain, our improved standing will count for little if a deal to keep Greece in the eurozone is not reached.

“You did see a decoupling in yields, which is a little reassuring, but obviously if the Greek situation was to worsen I don’t think it’ll be an issue of core versus periphery [states], I think the whole of Europe will be negatively affected,” said Investec chief economist Philip O’Sullivan yesterday.

“That, however, is not the central assumption at the moment. We would anticipate that an accommodation would be reached and we would expect to see Irish bonds continue to perform very well relative to the rest of Europe on the grounds of our superior fundamentals — we’ll probably the fastest growing economy in Europe this year and next — and also technical factors such as the rating agency upgrades.

“If an agreement is not reached, then all bets are off in terms of the market dislocation that would follow though.”

The muted market response to the Greek no vote took commentators somewhat by surprise again yesterday despite it being a continuation of a trend seen over the past week as the countdown to the plebiscite played itself out.

The German 10-year bond yield fell by just 2.6 basis points to 76 basis points, while moves in periphery nations were also insignificant.

The Spanish 10-year bond closed up 7.23% at 2.37% — little changed from last week — while its Italian equivalent was also relatively unchanged at 2.38%.

Meanwhile, on the currency markets, the euro was down 0.5% against sterling at 71.005p, having fallen to a low of 70.57p in early trading in Asia.

The euro showed little sense of panic selling, however, as markets put their faith in the ECB to take requisite action to settle the volatile situation.

Tomorrow is likely to be a pivotal day as eurogroup finance ministers and European leaders meet separately to consider their response to the referendum and Greek prime minister Alexis Tsipras presents a revised plan to try to reach an accord with creditors.