Bonds from the U.S. to Germany to Australia rose after Greek voters opted against government spending cuts being demanded by creditors, increasing concern the nation will be forced to leave the euro bloc.
Benchmark 10-year fell to a two-week low as investors sought the relative safety of governments bonds and European stocks fell after Sunday’s referendum. The turmoil in Greece triggered traders to scale back the probability that the Federal Reserve will raise interest rates later this year.
“There’s still some process that needs to transpire with the Greek situation before they’re fully out of the euro, or we have any sense of a resolution to that issue,” said Ian Lyngen, a government-bond strategist at CRT Capital Group LLC in Stamford, Connecticut. “That creates bullish underpinnings for the Treasury market.”
The 10-year yield fell 10 basis points, or 0.10 percentage point, to 2.29 percent as of 5 p.m. New York time, according to Bloomberg Bond Trader data. The yield was the lowest since June 19. The 2.125 percent note due in May 2025 rose 27/32, or $8.44 per $1,000 face amount, to 98 19/32.
The decision by Greek voters presents Fed officials with an additional hurdle to clear before they raise interest rates for the first time since 2006. Central-bank officials have said they plan to begin the process of normalizing monetary policy that has offered extraordinary accommodation since December 2008.
Fed funds futures show a 27 percent chance the central bank will lift its benchmark rate from near zero in September, down from 30 percent on July 2. The probability of the central bank tightening policy in December is 61 percent, down from 66 percent last week, according to data compiled by Bloomberg.
“While Greece is the focus today, if it ever starts to fade from the headlines the market’s going to focus on what’s the Fed going to say, what’s the Fed going to do,” said Donald Ellenberger, who oversees about $10 billion as head of multi-sector strategies at Federated Investors in Pittsburgh. “This Fed’s bar for delaying tightenings seems to be pretty low. I’d say September is a 50-50 shot.”
Germany’s 10-year bund yield touched 0.70 percent, the lowest since June 3. The yield on similar-maturity Australian debt declined 14 basis points to 2.93 percent. Japanese bonds rose for a second day, with the 10-year yield falling to 0.47 percent.
Demand for government bonds is trimming losses from earlier in the year. The Bloomberg Global Developed Sovereign Bond Index has fallen 3.9 percent this year through July 3, after being down as much as 4.7 percent when prices bottomed on June 5.
Sixty-one percent of voters supported Prime Minister Alexis Tsipras’s calls to reject further austerity. Finance Minister Yanis Varoufakis resigned on Monday, saying his presence would hamper further bailout talks.
Market reaction was still relatively benign after the “no” vote. Treasury 10-year yields plunged 33 basis points after Lehman declared bankruptcy on Sept. 15, 2008, more than triple Monday’s decline.
“Everyone is really just doing the bare minimum because they realize that when or if Greece blows over, and if it doesn’t actually influence too much of the global economy, you are really back to trading the fundamentals and the fundamentals don’t really see you positioned for risk-off,” said Gennadiy Goldberg, U.S. strategist at TD Securities USA LLC in New York.