Except for Greece, a weekend of election upsets in Europe prompted by voter backlash against austerity policies failed to unnerve the one market that is usually most focused on government spending: the bond market.
Bonds had a ho-hum reaction to balloting in France that produced the first socialist president in more than a decade, and a state election in northern Germany that delivered a rebuke to austerity-championing Angela Merkel and her governing conservative Christian Democratic Union party.
Although government bonds in many countries sold off sharply in early Monday trading, they later recovered their poise to end European trading little changed.
French bellwether 10-year bonds even rallied to close the session with modest gains, as did those of Italy and Portugal, two countries that often cause jitters in the fixed-income market, while the bonds of Spain, another problem borrower, closed nearly unchanged.
"When we look at the market reaction as a whole … it almost seems to be a non-event outside of Greece," said Douglas Porter, deputy chief economist at BMO Nesbitt Burns.
Greek government bonds fell sharply Monday after a collapse in support for the two main centrist parties that backed austerity policies imposed as a condition of further European financing for the country. There was no clear election victor in national voting, which will complicate the creation of a new government.
Greek bonds tumbled more than €3 ($3.89), considered a huge move in the fixed-income market, to €22.41, according to Bloomberg. Yields, which move in the opposite direction to prices, soared to a punishing 21.87 per cent, up nearly two full percentage points on the session.
But the muted reaction in most markets shows the election results "were very highly anticipated," said Kent Engelke, chief economic strategist at Capitol Securities Management, Inc., a Virginia-based investment dealer.
Markets appear to have begun to take the electoral news from Europe in stride, although trading was lighter than normal because of a banking holiday in the United Kingdom. "If this news came out, let's say, nine months ago, all hell would be breaking loose," Mr. Engelke said.
The lack of dramatic reaction elsewhere to the sharp selloff in Greece, which in the past has led the debt crisis in Europe, suggests markets are viewing that country as a special case that won't spread jitters to the rest of the continent.
With its latest drop, the Greek bond market is also beginning to price in more risk of an eventual exit from the euro currency zone or another debt restructuring. Many market players believe the country "is going to ultimately, somehow or the other, leave the euro," Mr. Engelke said.
The weekend elections in Europe took place against a backdrop of severe, deficit-cutting austerity policies that were introduced to improve government finances. Voter rejection of candidates who supported those measures might have been expected to cause bond prices to dive.
But the muted reaction indicates many market players may be starting to view the continent's austerity measures as counterproductive because sharp government spending cuts are worsening Europe's recession.
In turn, weak business conditions and rising unemployment are cutting government revenues and feeding into a vicious circle that is making it more difficult to reach deficit reduction goals.
"The one take-away here is that the bond market clearly viewed the austerity drive as potentially counterproductive. It can obviously live with some lightening up of austerity," Mr. Porter said.
"It does seem like there had been too much of a tilt to the one side of the board for the good of the economy."