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Developments in the Greek government bond market - January 2008

12/02/2008 - Press Releases

On international markets, government bonds recorded considerable gains and yield curves steepened significantly in January in response to the release of weak economic data in the US and the strong monetary policy easing by the Federal Reserve. The data published in the US showed deteriorating consumer, industrial and labour market conditions together with a worsening of the housing contraction. At the same time tensions in financial markets intensified and global equity markets fell dramatically as investor fears of a US economic recession increased. In view of a weakening of the US economic outlook and downside risks to growth the Federal Reserve cut official interest rates twice during January, by 75 basis points (bps) in an emergency move on January 22 and by further 50 bps at the end of the regular meeting on January 29-30. In the Euro-zone economic data as well as confidence indicators published during the month showed further weakening.

On the Greek electronic secondary securities market (HDAT), government bond yields fell in January along the whole maturity spectrum and more remarkably on the short end of the curve, in line with the performance seen in the rest of the Euro-zone markets. On January 29, a new 3-year benchmark bond (maturity 20/3/2011) was introduced into HDAT and its yield was trading at 3.77% on the last day of the month. The old 3-year benchmark bond yield fell by 52 bps to 3.70% on January 28 from 4.22% on December 31. On the long end of the curve, the 10-year benchmark bond yield declined by 32 bps to 4.34% at the end of January from 4.66% on December 31 and the 30-year bond yield fell by 10 bps (considering rounding) to 4.96% from 5.05%. As a result, the yield curve steepened considerably with the yield difference between the 30 and the new 3-year bond yields reaching 119 bps at the end of January compared to 84 bps at the end of December. Finally, the average monthly spread between the Greek and the German 10-year benchmark bond yields widened to 35 bps in January from 29 bps in December.

Benchmark bond prices rose between 75 and 242 bps, with the 10-year bond price showing the biggest increase to 99.64 on January 31 from 97.22 on December 31. The new 3-year bond was trading at 100.09 on January 31 while the 30-year bond at 94.2 compared to 92.7 on December 31.

Trading volume on HDAT in January amounted to EUR 43.73 billion worth of transactions compared to EUR 21.36 billion in December and EUR 64.31 in January 2007. The daily average turnover was EUR 1.99 billion compared to EUR 1.12 billion during the previous month. Investors' interest was mainly focused on bonds with remaining maturity between 7 and 10 years, which absorbed EUR 21.5 billion worth of transactions, or 49% of the overall traded volume, while the most actively traded bond was the 10-year benchmark with EUR 13.24 billion worth of transactions followed by the 10-year bond, maturing on 20/7/2016, with EUR 5.05 billion. Of the 7,898 orders executed on HDAT, 46% were ''buy'' orders and 54% ''sell'' orders.

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