The euro region is stepping back from the abyss. After weeks of media reports claiming that German officials were ready to accept losing Greece from the euro, saner thinking seems to have prevailed -- as the drastic drop in Greek bond yields today demonstrates. The whole episode is a timely reminder, though, that while European Union law describes the euro as irrevocable, investors aren't so sure about its permanence.

A more conciliatory tone from Alexis Tsipras, the most likely winner of the Greek election on Jan. 25, is helping make everyone more realistic. Over the weekend, he pledged to maintain the country's euro membership and to honor Greece's debt obligations. The nation is to repay more than 5.6 billion euros in March, up from the 1.4 billion euros it needs to pay this month and the 2.8 billion euros that come due in in February, according to Bloomberg data.

 

Eoin Treacy's view

This is not the first time European politicians have used the EU as a scapegoat to further their domestic ambitions and it is unlikely to be the last. After-all laying the blame for economic malaise and exorbitant debts at the feet of an anonymous unelected bureaucracy in Brussels is infinitely more attractive than taking responsibility for the actions of one’s party at home. Mr Tsipras more conciliatory tone improves the potential that this escalation of political tensions is nothing more than brinksmanship. However if his standing in the polls declines, we can anticipate his rhetoric will harden.

Greek government bond yields have tightened over the last three sessions to test the short-term progression of higher reaction lows.  However a sustained move below 8% would be required to signal more than temporary demand dominance.