The Bond Market Survives

After spending much of the final weekend in June poring over worrisome news from Greece, money manager Raman Srivastava set his alarm for 2 a.m. on Monday and quickly left for the office. Srivastava, head of global fixed income at Standish Mellon Asset Management in Boston, downed four cups of coffee and ate doughnut holes at his desk as he waited for London’s stock and bond markets to open at 3 a.m. Already, the euro was falling, and Asian stock markets had plunged. Investors were reacting to Prime Minister Alexis Tsipras’s surprise decision to hold a referendum on austerity measures Greece would need to adopt to get a financial lifeline. While it’s true that investors have been pondering the consequences of a Greek meltdown for the better part of four years, says Srivastava, “you never know how things are going to play out.”

For months, concern had been spreading on Wall Street and in Washington that the bond market might not be able to handle a massive selloff—that if too many investors decided to sell at the same time, there wouldn’t be enough buyers, and bond prices would plunge, or the markets would freeze, as they did during the 2008 credit crunch. On Monday, June 29, it seemed as if that moment might be at hand. Not only was Greece on the verge of default, Puerto Rico warned on Sunday that it couldn’t pay its $72 billion in debt.