The conflict between Greece's new government and Europeanleaders is escalating and may very well lead to the nation exitingthe euro zone.

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The bond market's response?

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Shrug. Yawn. We've seen this movie before.

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During a previous incarnation of Greek debt negotiations in2011, investors fled riskier European assets. This time, they'rebuying. Last week alone set a new record for mutual-fund moneyflowing into the region. Investors poured about US$40 billion intoEuropean debt, equity, and commodities funds, including $2.8billion into euro-denominated corporate-debt funds, according todata compiled by Bank of America Corp. analysts.

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And while investors used to punish Italian and Spanish bonds intandem with Greece, yields on those securities were hovering within0.1 percentage point of their all-time lows as of Feb. 6. Investorshave been calmed by the European Central Bank's plan to buy bonds,and have turned to riskier assets as a swelling proportion of theregion's government debt carries negative yields.

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As for broader measures, the two-year interest-rate swapspread—a gauge of stress in debt markets—is 0.26 percentage point,a reading that's almost one-third below its decade-long average.Typically, a lower spread indicates less stress. In November 2011,the measure widened to 0.55 point.

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In other words, Greek leaders may be riling up Europe's centralbankers and other finance chiefs, but they're not having too muchof an effect on risk appetite in credit markets worldwide.

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“If you look at the world's total debt and you look at theirdebt, they're 0.3 percent of the world's debt,” Mark Patterson, whoco-founded MatlinPatterson Global Advisers, said in a Bloombergtelevision interview last week. “It can have repercussions for theeconomy, but there are so many other factors that are moresignificant,” such as China's growth trajectory and the directionof oil prices, he said.

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Of course, markets may be too sanguine and an actual Greek exitwould undoubtedlyhave consequences that aren't being priced in right now.

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Investors in Greek bonds are concerned about their prospectsafter Greek Prime Minister Alexis Tsipras gave a combative speechSunday in which he vowed to “negotiate an end to the EuropeanUnion's austerity.”

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'Limited Contagion'

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Yields on Greece's three-year notes rose to the highest sincethe country's 2012 debt restructuring while the Stoxx Europe 600Index dipped less than 1 percent.

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Tsipras's remarks didn't go over well with European UnionCommission President Jean-Claude Juncker, who said Monday thatGreece “cannot expect” that Europe will accept the whole electionprogram of the nation's new leadership.

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The muted response in markets is making it easier for Europeangovernment leaders to take a tough stance this time around as theynegotiate with Greece, Deutsche Bank AG analyst Francis Yared wrotein a Feb. 6 report. There's “limited contagion to the periphery andbroader market,” he wrote.

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So Greek leaders can assert themselves all they want.

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Bond traders across the globe, for now at least, are barelyflinching.

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