LONDON: Greek government bond yields tumbled to new all-time lows on Monday after snap elections saw Greece's opposition conservatives return to power, sparking hopes of a renewed focus on strengthening the country's economic recovery.
Elsewhere, euro zone bond markets reversed some of the sharp yield rises seen on Friday after better-than-expected US jobs data prompted investors to speculate that the US Federal Reserve would not cut rates by as much as expected.
Greece's opposition New Democracy returned to power with a landslide victory in snap elections on Sunday, and Prime Minister-elect Kyriakos Mitsotakis said he had a clear mandate for change, pledging more investments and fewer taxes.
The win appeared driven by fatigue with years of European Union-enforced belt-tightening, combined with high unemployment, after the country almost crashed out of the euro zone at the height of its financial travails in 2015.
"It should be noted that Greek sovereign debt is trading at yield levels consistent with an investment-grade rating," said Markus Allenspach, head of fixed income research at Julius Baer in a note. "i.e. the market has priced in a lot of positive development from here."
Greek 10-year bond yields fell by as much as 14 basis points to hit new all-time lows of 2.014%, before pulling back to around 2.14% to stand two bps lower on the day.
Explaining the retracement, Mizuho's head of rates strategy Peter Chatwell said that there was some negative reaction for Greek bonds because there is an expectation that New Democracy's policies will lead to a larger deficit.
"The main move today was because the expected outcome was realized and from here on macro fundamentals will be the driver," he said.
Still, at current levels, Greek 10-year bond yields are around the same levels as benchmark US Treasury yields .
Greek yields have fallen over 200 bps since the start of the year, and outperformed Italy, partly fuelled by the hope that New Democracy would take power.
Five-year Greek bond yields were down 7 bps to 1.09%.
Europe should grant Greece short-term fiscal leeway on condition that Mitsotakis delivers promised reforms to strengthen the country's supply potential, Berenberg chief economist Holger Schmieding said in a report on Monday.
"For Greece and the euro zone as a whole, this would be a win-win deal," he said.
Germany's 10-year bond yield dipped 1.5 bps to minus 0.37% , having recorded its biggest one-day jump in almost three months on Friday after data showed employment in the United States rebounded strongly in June.
After Friday's strong US jobs readings, traders have scaled back expectations the Federal Reserve will cut rates by a hefty 50 basis points at its next policy meeting on July 30-31. They still expect a quarter-point cut.