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 Investors sought low-risk assets including Bunds, but the yield
premium of Italian 10-year debt over Germany remained below the
eight-month highs it hit a week ago.
The euro lost half a percent to $1.1053 and 0.6 percent against the
safe-haven Japanese yen. It fell as low as $1.0967 in Asia before
rebounding, garnering some support from the resignation of Greece's
outspoken finance minister, Yanis Varoufakis.
Analysts attributed the relatively muted market reaction to
expectations the European Central Bank would act to limit any
damage. The ECB's governing council was holding a conference call on
Monday to decide how long to keep Greek banks afloat.
"The market is, rightly or wrongly, taking a great deal of credence
of the fact that the ECB has many more defense mechanisms in place
than it did in 2011-12," said Andrew Milligan, head of global
strategy at Standard Life Investments.
"Some of the measures we've seen already could be seen as a subtle
signal by the ECB that it is ready to step up... This point ...is
very important to the market reaction we've seen."
Many traders and analysts had expected a closer result or even a
'Yes' in Sunday's referendum. In the event, more than 60 percent of
those who voted rejected the conditions demanded by Greece's
creditors.
The pan-European FTSEurofirst 300 index, led lower by banks, was
down just 0.6 percent by 1000 GMT (6:00 a.m. EDT), a far less
dramatic fall than indicated by futures prices before the open.
Germany's DAX was down 0.8 percent while Italy's FTSE MIB index
dropped 2.3 percent. Italy, Spain and Portugal are seen as the
economies most vulnerable to contagion from Greece.
Some bankers said the result made it more likely Greece would leave
the euro. However, a poll of investors taken on Sunday by Germany's
Sentix research group showed expectations of a "Grexit" in the
coming months unchanged from a week earlier at 50 percent.
"Markets have yet to be convinced in full either that the (Greek)
exit door will be open or that the extent of any contagion from this
could be irreparably damaging to the system," said Neil Williams,
chief economist at Hermes Investment Management.
Yields on Italian, Spanish and Portuguese government bonds rose
between 6 and 11 basis points. German 10-year yields fell 5 bps to
0.75 percent.
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The yield gap between Italian and German 10-year bonds, at 159 bps,
held below last Monday's eight-month closing high, which followed
the collapse of talks between Greece and euro zone leaders.
Greek bond markets have been closed since the regulator requested
their suspension last week but dealers' quotes indicated two-year
yields 16.3 bps higher at 51.34 percent, the highest since the bonds
were issued in July 2014.
U.S. 10-year Treasury yields dropped 7.2 bps to 2.32 percent.
The euro's fall helped push the dollar up 0.3 percent against a
basket of currencies
RUSH FROM RISK
In Asia, a rush from risk took MSCI's broadest index of Asia-Pacific
shares outside Japan down 2.8 percent in the steepest daily drop in
two years.
Chinese stocks rose, however, after an unprecedented series of
support measures from Beijing to halt a slide of around 30 percent
since mid-June. The CSI 300 index of the largest listed companies in
Shanghai and Shenzhen rose 2.9 percent.
Japan's Nikkei shed 2.1 percent, while U.S. equity futures dropped
0.7 percent.
Brent crude oil futures fell 67 cents to $59.66 a barrel. Gold,
traditionally seen as a safe haven, initially rose after the Greek
vote, but gains fizzed out due to the dollar's relative strength. It
traded at $1,165 an ounce.
(Additional reporting by Wayne Cole in Sydney, Hideyuki Sano in
Tokyo and Patrick Graham, Lionel Laurent and Alistair Smout in
London; editing by John Stonestreet)
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