LONDON, July 6 (Reuters) - Italian, Spanish and Portuguese bond yields rose just over 10 basis points on Monday after an overwhelming Greek vote against EU-prescribed austerity measures that could set Athens on a path out of the euro zone.
Around 61 percent of those voting in the referendum backed the government and rejected bailout conditions demanded by its creditors, according to the latest figures.
Prime Minister Alexis Tsipras' government said this would strengthen the country's negotiating position on a new aid deal with its EU and International Monetary Fund creditors.
French Finance Minister Michel Sapin said the outcome of Sunday's referendum would not automatically lead to Greece's exit. But many economists, including those at JPMorgan, said it would probably hasten Greece's exit from the euro zone.
Bankers said the European Central Bank's response would be key to the extent of contagion from Greece to the rest of the euro zone. Some in the market said the result would boost the chances of other anti-austerity parties, such as Spain's Podemos, and erode ongoing reforms. Spain holds a national election in November.
Spanish and Italian 10-year yields were 11 basis points higher at 2.35 percent and 2.38 percent, respectively. Yields on 10-year Portuguese bonds, the other market most vulnerable to contagion from Greece, were 12 bps up at 3.09 percent.
"The market was gradually positioning for a 'Yes' vote last week. That's why now we are seeing typical flight to quality, with lower core (bond yields) and wider peripheral spreads," said BNP Paribas strategist Patrick Jacq.
"How far and how long this goes on depends on the ECB decision today and the pace of negotiations. If this is going in the right direction rapidly then the market moves could fade, but as long as uncertainty prevails the current market environment will remain unchanged."
NO PANIC
The resignation of Greek's combative Finance Minister Yanis Varoufakis was seen as a positive step though it remained to be seen how tough a stance Tsipras would take in renewed talks with EU partners.
While yields on peripheral euro zone bonds are now more than double the lows hit in March following the ECB's launch of its trillion-euro asset purchase programme, they are still way below the 7 percent levels seen at the height of the debt crisis in 2011/2012.
This largely reflects investors' faith that the ECB's firewalls, including the ongoing asset purchases, would soften any blow from a possible Grexit, and some belief that a solution would be found to keep Greece in the euro zone.
German 10-year yields,, the benchmark for euro zone borrowing costs, were 6 basis points down at 0.74 percent as investors scrambled for safer assets. Yields on other top-rated euro zone bonds were also lower.
finance.yahoo
Around 61 percent of those voting in the referendum backed the government and rejected bailout conditions demanded by its creditors, according to the latest figures.
Prime Minister Alexis Tsipras' government said this would strengthen the country's negotiating position on a new aid deal with its EU and International Monetary Fund creditors.
French Finance Minister Michel Sapin said the outcome of Sunday's referendum would not automatically lead to Greece's exit. But many economists, including those at JPMorgan, said it would probably hasten Greece's exit from the euro zone.
Bankers said the European Central Bank's response would be key to the extent of contagion from Greece to the rest of the euro zone. Some in the market said the result would boost the chances of other anti-austerity parties, such as Spain's Podemos, and erode ongoing reforms. Spain holds a national election in November.
Spanish and Italian 10-year yields were 11 basis points higher at 2.35 percent and 2.38 percent, respectively. Yields on 10-year Portuguese bonds, the other market most vulnerable to contagion from Greece, were 12 bps up at 3.09 percent.
"The market was gradually positioning for a 'Yes' vote last week. That's why now we are seeing typical flight to quality, with lower core (bond yields) and wider peripheral spreads," said BNP Paribas strategist Patrick Jacq.
"How far and how long this goes on depends on the ECB decision today and the pace of negotiations. If this is going in the right direction rapidly then the market moves could fade, but as long as uncertainty prevails the current market environment will remain unchanged."
NO PANIC
The resignation of Greek's combative Finance Minister Yanis Varoufakis was seen as a positive step though it remained to be seen how tough a stance Tsipras would take in renewed talks with EU partners.
While yields on peripheral euro zone bonds are now more than double the lows hit in March following the ECB's launch of its trillion-euro asset purchase programme, they are still way below the 7 percent levels seen at the height of the debt crisis in 2011/2012.
This largely reflects investors' faith that the ECB's firewalls, including the ongoing asset purchases, would soften any blow from a possible Grexit, and some belief that a solution would be found to keep Greece in the euro zone.
German 10-year yields,, the benchmark for euro zone borrowing costs, were 6 basis points down at 0.74 percent as investors scrambled for safer assets. Yields on other top-rated euro zone bonds were also lower.
finance.yahoo
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