Developments in the Greek government bond market - October 2006
03/11/2006 - Press Releases
On international markets, government bonds had a mixed
performance in October after three months of strong gains. During the first
three weeks of October, government bond prices fell considerably and yields
increased following the release of economic data and the revision of past
employment data in the US that eased investors concerns about future economic
growth. This led investors to revise their expectations of the timing of
official interest rates cuts by the Federal Reserve to the second half of 2007
instead of at the beginning as previously anticipated. Consequently bond yields
rose, particularly at the short end of the yield curve. However, during the last
week of October, market sentiment changed, following further evidence of a
slowdown in US economic activity. As a result, in the US, long - term maturity
bonds closed the month with gains and short - term bonds almost unchanged. In
the Euro-zone, losses were only partially recovered, because data showed that
economic recovery has become more broadly based and the growth outlook remains
positive. In addition, after the 25 basis points (bps) increase in interest
rates by the European Central Bank on October 5, markets expect further
increases in interest rates.
On the Greek electronic secondary securities market (HDAT),
benchmark bond yields rose along the whole maturity spectrum with a substantial
flattening of the yield curve. 3-year bond yields rose by 16 bps to 3.82% at the
end of October compared to 3.66% at the end of September, whereas 10 and 30-year
bond yields rose respectively by 9 and 4 basis points (bps) to 4.05% and 4.29%
from 3.97% and 4.25%. As a result, the yield curve (measured as the yield
difference between the 30 and the 3-year bond yields) flattened significantly to
47 bps at the end of October from 60 bps at the end of September. In addition,
the average monthly spread between the Greek and the German 10-year benchmark
bond yields narrowed further in October to 29 bps from 30 bps in September.
Benchmark bond prices fell in the range of 37 - 99 bps in
October. The 3-year bond price fell by 37 bps to 98.94 on October 31 from 99.31
on September 29. The 10-year bond price fell by 66 bps to 96.34 at the end of
October from 97.00 at the end of September and the 30-year bond price by 64 bps
to 103.57 from 104.21.
Trading volume on HDAT in October was EUR 52.64 billion worth
of transactions compared to EUR 52.45 billion in September and to EUR 76.44
billion in October 2005. The daily average turnover was EUR 2.39 billion
compared to EUR 2.50 billion in September. Trading activity was mainly focused
on bonds with remaining maturity between 7 and 10 years, which absorbed EUR
35.87 billion worth of transactions, or 68% of the overall traded volume. The
most actively traded bond was the 10-year benchmark with EUR 23.7 billion worth
of transactions followed by the 10-year bond, maturing on 20/7/2015, with EUR
8.1 billion. Of the 9,296 orders executed on HDAT, 52.60% were ''buy'' orders
and 47.40% ''sell'' orders.