Greece crisis: Price actions relatively contained, for now – DB

FXStreet (Barcelona) – FX and Rates Strategists at Deutsche Bank comment on the bond and EM FX market impact from the ongoing Greece bailout crisis.

Key Quotes

“While market participants had been bracing themselves yesterday morning for the fallout from developments in Greece, the price action was for the most part relatively contained, including in EM. Even the move in EMFX, typically the initial shock absorber during risk events, was nowhere much more than 1%.”

“As expected, local rates markets in emerging Europe came under some pressure. With the exception of Romania, however, spreads widened by about half of the 20bps or so that we saw in peripheral euro area yields. The price actions in the EM credit markets were also relatively contained, with CDX.EM widening by 7bp.”

“Whether this proves to be the calm before the storm is as yet unclear. If incoming opinion polls point to a no vote in Sunday’s referendum, we would expect to see additional volatility.”

“Macroeconomic fundamentals suggest less of a basis for contagion compared to the crisis in 2010-2012. Private sector direct exposure to Greece is much smaller. The euro-area in general, and the other peripherals, are in a stronger position. Also, Euro-area crisis management tools are much stronger than in the past. The ECB will not tolerate a tightening of financial conditions and has proven its ability to intervene in government bond markets with QE. The one element that has deteriorated, and of more significant concern, is politics and the rise of populism across Europe.”

FX and Rates Strategists at Deutsche Bank comment on the bond and EM FX market impact from the ongoing Greece bailout crisis.

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