Markets Take Greek Election Result in Stride

The euro briefly touched its lowest level against the dollar in more than a decade Monday while Greek government bonds fell sharply, after Greece’s voters handed power to a radical leftist party that has pledged to tear up the terms of the country’s international bailout.

But the weakness in the euro—which has already chalked up big losses this year—proved short-lived, with the currency ticking up slightly against the dollar and the yen in European trade. Investors had anticipated a victory for Syriza given the party’s lead in the polls, but the size of the margin was something of a surprise.

Equity markets in Europe largely shrugged off the news, with stocks dipping only slightly from recent seven-year highs. The Stoxx Europe 600 index was 0.4% lower in early trade.

Athens’ main stock index was recently down 3%.

Investors appear confident that the bond-buying stimulus program known as quantitative easing announced last week by the European Central Bank leaves markets much less vulnerable to fears of a eurozone breakup than they were during previous episodes of the Greek crisis.

“We expect that [ECB] backstops have effectively firewalled Greek developments and should limit contagion or re-emergence of [eurozone] existential anxiety. As such we do not expect developments to translate into substantial further euro weakness beyond what is already justified by QE,” said currency strategists at BNP Paribas .

Investors and analysts aren’t playing down the potential impact of this election result, however. The victory for antiausterity party Syriza could set Athens on a collision cause with its creditors and embolden radical parties elsewhere to challenge Europe’s economic orthodoxy.

In Asian trading hours, the euro dipped to a fresh 11-year low to the dollar of just below $1.11. Ultrasafe German debt rallied to new all-time highs while bonds in fiscally-weak eurozone countries declined.

The result gives the party “a strong mandate” to push through major changes to the Greek adjustment program, said Jan von Gerich, chief strategist at Nordea .

“The ensuing negotiations will be tough and contribute to market volatility in the coming months,” he said.

Syriza’s decision to strike a deal with the small Independent Greeks party could lead to more strained negotiations with Greece’s creditors—given the two parties share little except a rejection of the austerity measures imposed on Greece by its creditors.

Greek bonds tumbled, with the 10-year yield climbing around a third of a percentage point to 8.74%. But yields—which rise as prices fall—remain below last week’s highs.

Wider pressure on bond markets in the eurozone was modest Monday.

Italian and Spanish 10-year yields rose slightly to 1.54% and 1.39%. Still, both countries’ yields remain within touching distance of the all-time lows hit in the wake of last Thursday’s ECB meeting.

German yields, which typically fall in times of stress, touched a new record low of below 0.3% on the 10-year bond before rising again to trade little-changed on the day.