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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.

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