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(Lack of a) reaction in euro area yields

With the current situation in the ongoing Greek debt negotiations taking a turn for the worse this weekend, we take a look at other Euro area interest

Publishing date
28 June 2015
Authors
Thomas Walsh

With the current situation in the ongoing Greek debt negotiations taking a turn for the worse this weekend, we take a look at other Euro area interest rates on long-term debt  to gauge how markets have reacted to the news of a Greek referendum on the Eurogroup's proposals,  and the imposition of capital controls.

So far, markets have reacted in a fairly benign way, especially when put in the context of developments between 2010 and 2012.

Figure 1: Intra-day Evolution of 10 Year Sovereign Yields (%, hourly data)

RTEmagicC_Blog_Greece_Reaction_of_Yields_1.png

RTEmagicC_Blog_Greece_Reaction_of_Yields_2.png

RTEmagicC_Blog_Greece_Reaction_of_Yields_3_01.png

Source: Thomson Reuters Eikon, most recent data 17:00 CET (16:00 GMT)

Figure 2: Change since Market Closing on Friday, 26.06.15 (basis points)

RTEmagicC_Blog_Greece_Reaction_of_Yields_4.png

Source: Thomson Reuters Eikon, most recent data 17:00 CET (16:00 GMT)

Spain, Italy and Portugal show the biggest market reactions to the weekend’s news, with yields temporarily increasing by 22, 23 and 28 basis points respectively, from the last data on Friday to the point at which markets opened today. The markets have dampened their reaction since then somewhat (as shown by the red bars) in Spain and Italy.

Figure 3: Historical perspective of 10 year sovereign yields (%)

RTEmagicC_Blog_Greece_Reaction_of_Yields_5_02.png

Source: Thomson Reuters Datastream

Taking a broader look at volatility, the VIX and VSTOXX indicies do not show significant signs of major stress yet, although the VSTOXX, the European index, has diverged locally from the VIX recently, but this evolution has been ongoing since before the weekend's events.

Figure 4: VIX volatility index

RTEmagicC_Blog_Greece_Reaction_of_Yields_6_02.png

Source: Thomson Reuters EIKON

About the authors

  • Thomas Walsh

    Thomas Walsh, a British citizen, worked as a Research Assistant at Bruegel in the area of macroeconomics from August 2014 to August 2015.

    He holds a Master’s degree in Economics from the Barcelona Graduate School of Economics with a thesis entitled “The Credit Channel of Monetary Policy at the Zero Lower Bound: A FAVAR Approach”.

    He also holds a Bachelor’s degree in Economics and Econometrics from the University of Bristol.

    Previously, Thomas worked at the European Central Bank as a Trainee in the Statistics Development and Coordination division, working primarily with the ECB’s SME access to finance survey, SAFE.

    He has also held positions as Research Assistant at the Social and Public Health Sciences Unit, University of Glasgow and as Intern at the Centre for Market and Public Organisation, University of Bristol.
    His research interests cover macroeconomics and finance, particularly monetary policy transmission and central bank decision making. Thomas speaks English, conversational Spanish, and basic German.

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