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17/06/2010 - Developments in the Greek government bond market: May 2010

Government bond prices rose and yields fell in international markets during the month of May, except for the Italian and Spanish markets, where government bond prices recorded losses. Overall sentiment in the relevant market improved after the announcement on May 9 and 10 by the European governments and the European Central Bank (ECB), respectively, of a package of extraordinary measures in order to enhance financial stability. These included interventions by the ECB in the euro area securities markets to ensure depth and liquidity in market segments considered to be dysfunctional. In addition, the ongoing uncertainty about the fiscal adjustments in Europe and its impact on economic growth, shifted demand towards highly rated sovereign debt whose prices recorded gains.

On the Greek electronic secondary securities market (HDAT), Greek government bond yields fell significantly during May with the exception of the 15-year and 30-year tenors. The biggest decline was recorded in the 3-year benchmark yield that plunged by 204 bps to 7.80% at the end of May, followed by the 10-year benchmark that declined by 118 bps to 7.74%. On the contrary the 15-year and the 30-year benchmark bond yields rose respectively by 59 bps, to 8.53%, and 124 bps, to 8.25% at the end of May. As a result, the yield curve resumed its positive slope, with the difference between the 30- and the 3-year yields reaching 45 bps at the end of May, compared to -283 bps at the end of April. In addition, the average monthly spread between the Greek and the German 10-year bond yields widened to 514 in May from 474 bps in April.

As for government benchmark bond prices, the 3-year bond price rose to 91.80 at the end of May from 86.72 at the end of April, the 10-year bond price rose to 89.70 from 82.50 while the 30-year bond price fell to 59.75 from 70.00.

Trading volume on HDAT in May declined significantly to EUR 1.4 billion worth of transactions, compared to EUR 10.6 billion in April and EUR 20.2 billion in May 2009. The daily average turnover was EUR 69.7 million compared with EUR 529 million during the previous month. Of the 1,040 orders executed on HDAT, 59.3% were “sell” orders and 40.7% “buy” orders.