Despite only having an economy the size of the city of Atlanta, the country of Greece is having a gigantic impact on global financial markets. According to the Office of Financial Research, while the situation remains fluid and unpredictable, the contagion spillover effect from the Greece referendum and bailout standoff to global financial markets appears to be limited, with little sign of “contagion” to date.

It really boils down to the fact that the financial markets’ reaction to the final chapter of the Greece / Grexit saga today is much different than it was in 2011 and 2012, and investors seem to believe their will be no Grexit, or that even if it does happen, the impact on the global economy will be minimal.

OFR says contagion from Grexit seems limited

Grexit

The June/July 2015 OFR Markets Monitor notes: “In contrast to the euro area debt crisis in 2010-12, markets have consistently priced in a greater probability of an orderly outcome for the euro area during this [Grexit] episode.”

Grexit

The OFR op-ed goes on to highlight that the market reaction to the increasi9ngly negative news flow on Greece has been rather limited. That said, the price response was still notable across several asset classes: core eurozone and U.S. sovereign bond yields dropped, eurozone periphery nation spreads widened, global equities slipped, and the euro was down against all major currencies. However, until glitch-filled Wednesday, trading activity was relatively orderly with few signs of aggressive de-risking or any obvious stresses on funding or liquidity.

Grexit

The op-ed suggests strength of euro periphery bonds and risk assets more generally was due to increased confidence in euro area financial backstops, especially the ECB’s asset purchase program, as well as reforms in Italy, Spain, Portugal and elsewhere, and perhaps most importantly, much less private sector financial exposures to Greece.

Grexit

In concluding, the OFR analysts warn that the financial markets’ ability to shrug off the possibility and/or impact of a Grexit may be tested as the possibility of a more disorderly outcome in Greece grows.

See full PDF below.