European bonds and stocks on the defensive before tight Greek vote

Fri Jul 3, 2015 7:50am EDT
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By Marius Zaharia

LONDON (Reuters) - European bonds and stocks traded cautiously on Friday before a Greek referendum on EU-prescribed reforms that could determine the country's future in the euro zone and which polls suggest could go either way.

Yields on top-rated German 10-year Bunds, the benchmark for European borrowing costs, fell as some investors chose to preserve their capital in low-yielding but relatively safe assets. European stocks dipped and were set for the biggest weekly drop in two months, while the euro edged higher.

The moves were marginal, though, as investors did not want to position too heavily on either side.

"The European market is frozen ahead of the Greek referendum," said Markus Allenspach, head fixed income research at Julius Baer.

Supporters of Greece's bailout terms have taken a wafer-thin lead over the "No" vote backed by the leftist government, 48 hours before Sunday's referendum, an opinion poll showed.

The poll by the respected ALCO institute for newspaper Ethnos put the "Yes" camp on 44.8 percent against 43.4 percent for "No". But the lead was within the pollster's 3.1 percentage point margin of error, and 11.8 percent of respondents said they were still undecided.

"Attention will be pinned on Greece and this is likely to see investors cautious as we head into the weekend ... Even if we get a Yes' vote, this means the country must go back to the negotiation table and try to knock something together again," IG market analyst Stan Shamu said.

"However, it's a lot worse on the other side as a 'No' vote will present a host of uncertainties that could really rattle markets ... Either way, traders will need to buckle up for a tumultuous Monday."   Continued...

Traders are pictured at their desks in front of the DAX board at the Frankfurt stock exchange July 2, 2015.     REUTERS/Remote/Staff