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Developments in the Greek government bond market - May 2008

05/06/2008 - Press Releases

On international markets government bond prices declined further in May while yields rose to the highest levels so far in 2008 as investors revised higher their expectations of future official interest rates. The main factor leading to this performance was the increasing concern about accelerating inflationary pressures, with oil prices (NYMEX crude oil futures) rising sharply to USD 127.4 per barrel at the end of May from USD 113.5 at the end of April, after having reached an all-time high of USD 135.09 on May 22. Investor worries were reinforced by repeated comments by Federal Reserve (FED) and European Central Bank (ECB) officials warning about upside risks to price stability in the medium term, in the context of current high levels of inflation. All this led investors to anticipate interest rates increases by the ECB by the end of 2008 and an end to the easing cycle by the FED.

On the Greek electronic secondary securities market (HDAT), government bond yields rose markedly in May, particularly at the short end of the yield curve, in line with the performance seen in the rest of the Euro-zone. The 3-year benchmark bond yield rose by 41 basis points (bps) to 4.63% at the end of May from 4.22% at the end of April, while the 30-year benchmark bond yield rose by 16 bps (considering decimals rounding) to 5.37% from 5.20% respectively. As a result, the yield curve became considerably flatter, with the yield difference between the 30 and the 3-year bond yields narrowing to 73 bps at the end of May from 98 bps at the end of April. Moreover, on May 8 a new 10-year benchmark bond (with maturity date 20/7/2018 and coupon 4.60%) started trading on HDAT and its yield recorded an increase of 29 bps to 4.96% on May 30 from 4.67% on May 8. The average monthly spread between the Greek and the German 10-year benchmark bond yields rose to 54 bps in May from 51 bps in April.

Benchmark bond prices fell between 103 and 227 bps, with the 30-year bond price showing the biggest decline to 88.30 on May 30 from 90.57 a month earlier while the 3-year bond price fell to 97.83 from 98.86 respectively and the new 10-year bond price declined to 97.15 on May 30 from 99.39 on its first day of trading on May 8.

Trading volume on HDAT in May amounted to EUR 30.21 billion worth of transactions compared to EUR 17.68 billion in April and EUR 56.58 in May 2007. The daily average turnover was EUR 1.4 billion compared to EUR 884 million during the previous month. Investor interest was mainly focused on bonds with remaining maturity between 7 and 10 years, which absorbed EUR 16.2 billion worth of transactions, or 54% of the overall traded volume, while the most actively traded bond was the new 10-year benchmark with EUR 9.2 billion worth of transactions followed by the 10-year bond, maturing on 20/7/2017 with EUR 4.5 billion. Of the 5,726 orders executed on HDAT, 50.4% were "buy" orders and 49.6% "sell" orders.

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