A funny market. Even though both the EU and Greece seem confident to finish up an agreement within the next couple of days, there is still concern in the market that this might yet break down — and thus, a flight to security, e.g., US bonds.

“Investors are very quick to pull the trigger and buy Treasuries in this risk averse atmosphere,” said Sergey Bondarchuk, an interest-rate strategist in New York at BNP Paribas SA, one of 18 primary dealers that are required to bid at Treasury auctions.

On EU news, policy makers stepped up efforts to agree on a rescue plan for Greece this week after the two-year note yield surged to almost 26 percent and triggered a sell-off in the securities of other indebted nations in the region. And by all expectations, they will finalize this. But, according to Bondarchuk, “Worried fixed income investors are preparing for another massive flight to quality.”

Perhaps this is because of the significant risk should the agreement not come to pass: should it not consummate, the fallout will likely spread to Portugal, Spain, Ireland, and/or Italy; and the EU (and Euro) would likely come apart as an entity. It’s a puzzle to me, as all signs should be opposite this; but perhaps it’s this, that the effect of not coming to agreement would be massive to the market.

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