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Developments in the Greek government bond market - July 2008

22/08/2008 - Press Releases

Government bond yields ended lower on international markets in July, with the exception of 30-year US bond yields, after a very volatile month. The decline was particularly pronounced in the Euro-zone markets as yields fell around 30 basis points (bps) on short-term maturities and 20 bps at the long end of the curve, while the European Central Bank (ECB) increased official interest rates by 25 bps on July 3. This performance was due to ECB policy of anchoring inflation expectations and investors scaling back prospects of further monetary policy tightening by the ECB following the release of disappointing macroeconomic data that raised worries about the possibility of a significant slow-down in economic activity in the euro area. Moreover, renewed fears about the soundness of the US financial system and oil prices (NYMEX crude oil futures) reaching an all-time high of USD 147.27 per barrel around mid month offered further support to government bonds.

On the Greek electronic secondary securities market (HDAT), government bond yields fell markedly in June, particularly on short-term maturities, in line with the performance seen in the rest of the Euro-zone. In addition, yield spreads with respect to German bonds widened further slightly, with the average monthly yield spread on the 10-year maturity rising to 64 bps in July from 62 bps in June. The 3-year and the 5-year benchmark bond yields recorded the highest decline, by 32 bps (considering decimals rounding), to 4.81% and 4.90% respectively at the end of July from 5.14% and 5.22% at the end of June. The 10-year benchmark bond yield fell by 26 bps (considering decimals rounding) to 5.07% from 5.32% and the 30-year benchmark bond yield declined by 23 bps to 5.33% from 5.56%. As a result, the yield curve became steeper while shifting downwards, with the yield difference between the 30 and the 3-year bond yields widening to 52 bps from 42 bps at the end of June.

Benchmark bond prices rose between 86 and 312 bps, with the 30-year bond price showing the biggest increase to 88.82 on July 31 from 85.70 on June 30. In addition, the 3-year bond price rose to 97.51 from 96.65 and the 10-year bond price to 96.36 from 94.43.

Trading volume on HDAT in June amounted to EUR 29.17 billion worth of transactions compared to EUR 26.69 billion in June and to EUR 55.74 billion in July 2007. The daily average turnover was EUR 1.27 billion compared to EUR 1.33 billion during the previous month. Investor interest was mainly focused on bonds with remaining maturity between 7 and 15 years, which absorbed EUR 16.6 billion worth of transactions, or 57% of the overall traded volume, while the most actively traded bond was the 10-year benchmark with EUR 12.2 billion worth of transactions followed by the 5-year benchmark with EUR 3.4 billion. Of the 5,545 orders executed on HDAT, 54.2% were "buy" orders and 45.8% "sell" orders.

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