No market panic over Greek default

By Nicholas Vinocur

On the day after, 'Grexit' fears subside among investors.

Despite the Greek government’s failure late Tuesday to honor a €1.6 billion payment to the International Monetary fund, several asset classes including eurozone government bonds actually recovered from a sell-off earlier this week as confidence improved.

Why? Mostly because of signs that “Grexit” isn’t around the corner.

The euro held steady against the dollar at about $1.11, while the main stock markets of London, Paris and Frankfurt all opened between 0.6 percent and 0.9 percent higher than their Tuesday close. So did the key indices in Italy, Portugal and Spain, Reuters reported.

Eurozone government bond prices also stabilized. While Greece’s announcement over the weekend of a referendum on bailout terms briefly spooked debt markets, the interest rates of government bonds from peripheral eurozone states eased on Wednesday.

The “spread” — or premium — between Portugal’s benchmark bond and ultra-stable German bonds narrowed to 215 basis points, or hundredths of a percentage point, from 221 basis points on Tuesday.

In Eastern Europe, Poland’s zloty strengthened slightly against the euro after weakening earlier in the week, as did Hungary’s forint.

Improving confidence in Europe flowed from Asia, where Japan’s Nikkei 225 share index ended Tuesday up by 0.46 percent, Australia’s S&O/ASX 200 rose by 1 percent and South Korea’s benchmark Kospi was up by 1.14 percent at the end of trading.

Only Chinese shares clocked further declines, but they were linked to domestic reasons, not Greece.

“The default is not really a surprise,” said Jean-Louis Maurier, an economist at Aurel BGC. “Markets knew what was going to happen, and now confidence is returning because we get the impression they are starting to discuss new plans to help Greece.”

Indeed, investors might be reacting to signals from political leaders that Greece is not going to leave the eurozone — even if voters do choose to reject the terms of a eurozone bailout package on Sunday.

One strong signal of continued support for Greece came from German Finance Minister Wolfgang Schäuble, who told lawmakers in Berlin late Tuesday that Athens would remain in the eurozone regardless of the referendum’s outcome.

Also dampening fears of a disorderly “Grexit:” the Financial Times reported that Greek Prime Minister Alexis Tsipras offered in a letter to accept all his creditors’ conditions with only minor changes. The letter could serve as a basis for a new bailout package in coming days, the FT said.

“Greece’s exit from the eurozone remains something that is highly theoretical, in fact quite remote,” said Maurier. “The dominant feeling is that everything will be done to avoid that scenario.”