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Developments in the Greek government bond market - September 2006

05/10/2006 - Press Releases

International government bond markets had a positive performance in September for the third consecutive month. In the US government bond yields fell along the whole maturity spectrum, whereas in the Euro-zone government bond yields declined significantly at the long end of the curve while short term bond yields remained approximately at the same levels reached at the end of August. The reason for this performance was investors' expectations of further interest rates increases by the European Central Bank (ECB) on the one hand, and macroeconomic developments in the US on the other. The repeated statements of the ECB President about the need of strong vigilance on price developments was the main factor that led investors to expect further increases in official interest rates by the ECB in the near future therefore limiting the possibility of a decline in short term European bond yields. On the other hand, the economic data released in the US reinforced investors' expectations of a significant deceleration of the US economy and of lower official interest rates in coming months leading to a decline in government bond yields.

On the Greek electronic secondary securities market (HDAT), benchmark bond yields declined significantly on the long end of the curve while 3 - year bond yields remained virtually unchanged. The 10 and the 30 - year bond yields fell respectively by 14 and 24 basis points (bps) to 3.97% and 4.25% at the end of September from 4.11% and 4.49% a month earlier, while the 3-year bond yield was 3.66% (3.657%) at the end of September compared to 3.65% (3,654%) at the end of August. As a consequence, the yield curve flattened significantly while shifting downwards as the 3 to 30-year yield gap narrowed to 60 bps at the end of September from 83 bps at the end of August. In addition, the average monthly spread between the Greek and the German 10 - year benchmark bond yields narrowed to 30 bps in September compared to 31 bps during the previous two months.

Benchmark bond prices rose between 1 and 403 bps in September. The strongest gains were recorded by the 30-year bond price that closed at 104.21 on September 29 from 100.18 on August 31 while the 10-year bond price rose to 97.00 from 95.89 and the 3-year bond price was almost unchanged at 99.31 from 99.30.

Trading volume on HDAT was EUR 52.45 billion worth of transactions in September compared to EUR 42.98 billion in August and to EUR 78.73 billion in September 2005. The daily average turnover rose to EUR 2.50 billion from EUR 1.95 billion in August. Trading activity was mainly focused on bonds with remaining maturity between 7 and 10 years, which absorbed EUR 34.81 billion worth of transactions, or 66% of the overall traded volume. The most actively traded bond was the 10-year benchmark with EUR 23.96 billion worth of transactions followed by the 10-year bond, maturing on 20/7/2015, with EUR 7.90 billion. Of the 9,316 orders executed on HDAT, 49.69% were ''buy'' orders and 50.31% ''sell'' orders.

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