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Developments in the Greek government bond market - October 2009

05/11/2009 - Press Releases

Government bond prices fell and yields rose in international markets in October, with the exception of short-term maturity bond prices in the US and in some euro area government bond markets that rose marginally. One major factor behind this development was the increased risk appetite on the part of investors following the release of some encouraging economic data, both in the US and in the Euro-zone, and positive third-quarter corporate earnings by major American companies. At the same time, investors maintained their view that official interest rates will be kept at the current low levels in major countries as long as the global economic recovery remains fragile. Finally, towards the end of the month, the yield spread between the Euro-zone bonds of the so-called periphery and the correspondent German bonds widened slightly after the rating agency Fitch downgraded the sovereign debt of Greece, to A- from A, and Moody’s placed Greece’s debt rating on review for a possible downgrade while also changing the outlook on Portugal’s debt rating to negative from stable.

On the Greek electronic secondary securities market (HDAT), Greek government bond yields rose particularly on long-term maturity bonds. The biggest rise was recorded in the 30-year benchmark bond yield that increased by 29 basis points (bps) to 5.47% at the end of October, followed by the 15-year benchmark yield that rose by 23 bps to 5.05% and the 10-year yield that increased by 15 bps to 4.66%. On the short end of the yield curve the 3-year yield rose by only 9 bps to 2.29%. Therefore, the yield curve steepened, with the difference between the 30- and the 3-year bond yields widening to 319 bps from 298 bps at the end of September.In addition, the average monthly spread between the Greek and the German 10-year bond yields widened further slightly in October to 133 bps from 127 bps in September.

As for benchmark bond prices, the 3-year bond price fell to 104.61 at the end of October from 104.98 at the end of September, the 10-year bond price fell to 110.19 from 111.52 and the 30-year bond price to 87.13 from 91.15 respectively.

Trading volume on HDAT in October increased to EUR 55.42 billion worth of transactions, compared with EUR 51.79 billion in September and EUR 13.79 billion in October 2008. The daily average turnover also rose to EUR 2.64 billion, compared with EUR 2.35 billion during the previous month. Investor interest was mainly focused on bonds with remaining maturity between 7 and 10 years, which absorbed EUR 45.6 billion worth of transactions, or 82% of the overall traded volume. The most actively traded bond was the 10-year benchmark with EUR 44.5 billion worth of transactions followed by the 5-year benchmark with EUR 2.6 billion. Of the 10,353 orders executed on HDAT, 52.5% were “buy” orders and 47.5% “sell” orders.

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