Greece crisis: The impact on trading

Greece is the number one story for markets this week after the country spectacularly rejected creditors’ plans for a bailout. Greece crisis keyboard.jpg

A Grexit looks ominously likely and investors are starting to price in the prospect. The euro is lower but holding firm. Stocks in Europe are under pressure but there's been no bloodbath, yet.

But what are some of the other effects on trading stocks and bonds?

Corporate bonds dry up

Escalating uncertainty is putting deals on hold and seeing the volume of corporate bonds dry up, notes the FT’s Joel Lewin.

Just €10.96 billion in euro-denominated corporate bonds were issued in the last month, he says, a third of that for the four weeks prior. Last week was the weakest in a year with just €550 million in corporate bond sales.

Asian bond risk rises

Bloomberg notes that the Markit iTraxx Asia index of credit-default swap prices climbed 1.5 basis points to 112.3, its biggest daily jump in a week,

“I guess from here the norm is hedge your bets,” Brayan Lai, the head of research and a portfolio manager at One Asia Investment Partners Pte in Singapore, told the news provider. “Volatility is definitely back.”

Volatility climbs

Volatility is back in Europe and the US, too. Euronext NV has reported its strongest six-month trading since 2011.

Last week also saw the CBOE Volatility Index (VIX), the fear gauge, jump more than 36 per cent to above 19, its largest one-day move in 2015, as US equities suffered a big sell-off.

Eyes off China

All the focus on Greece draws attention away from China, where stocks have experienced epic volatility.

The Shanghai Composite Index has lost 30 per cent in three weeks. On Monday, it jumped eight per cent, before retreating to close up three per cent after some extraordinary policy moves from Beijing.

Supported by liquidity injections from the state-backed margin finance company, ultimately back-stopped by the People’s Bank of China (PBOC), brokerages and fund managers will buy huge amounts of stocks to avoid a full-scale crash.

Bank of America Merrill Lynch analysts said the PBOC may have “crossed the rubicon” and risks “hurting its credibility”. Greece could become a sideshow if China gets this wrong.