Developments in the Greek government bond market - September 2008
03/10/2008 - Press Releases
Government bond prices rose and yields fell on international
markets in September, during one of the most difficult phases for financial
markets since 1929. During the month, major financial institutions in both the
US and Europe have either failed or been rescued. In addition, money market
rates have increased sharply in response to rising uncertainty and the drastic
fall in market confidence while major Central Banks had to intervene
continuously to provide liquidity to the system. There has been high volatility
in financial markets as investors were responding to contrasting news about the
possible introduction of political measures in the US designed to alleviate the
negative consequences of the current crisis and restore market confidence. Under
these difficult market conditions, investor preference for more secure forms of
investment finally prevailed with a positive impact on government bonds
performance.
On the Greek electronic secondary securities market (HDAT),
government bonds had a negative performance, with the exception of short-term
maturity bonds, while yield spreads with respect to equivalent German bonds
increased noticeably. This was the consequence of the escalating financial
crisis that led investors to focus on bonds with the highest credit rating. More
in details, the 3-year benchmark bond yield fell by 32 basis points (bps) to
4.23% on September 30 from 4.55% on August 29, while on the long end of the
curve, 10-year and 30-year benchmark bond yields rose by respectively 12 bps and
26 bps to 4.96% and 5.44% at the end of September from 4.84% and 5.18% at the
end of August. As a result, the yield curve became considerably steeper, with
the yield difference between the 30 and the 3-year bond yields widening to 121
bps at the end of September from 63 bps a month earlier. In addition, the
average monthly spread between the Greek and the German 10-year bond yields
widened to 77 bps in September compared to 66 bps in August.
Benchmark bond prices rose on the short end of the curve,
with the 3-year bond price rising by 79 bps to 98.98 on September 30 from 98.19
on August 29, while they fell on medium and long-term maturities, with the
30-year bond price showing the biggest decline by 358 bps to 87.40 from 90.98
and the 10-year bond price falling by 92 bps to 97.21 from 98.13.
Trading volume on HDAT in September amounted to EUR 26.30
billion worth of transactions compared to EUR 25.08 billion in August and to EUR
34.35 billion in September 2007. The daily average turnover was EUR 1.20 billion
compared to EUR 1.25 billion during the previous month. Investor interest was
mainly focused on bonds with remaining maturity between 7 and 10 years, which
absorbed EUR 14.8 billion worth of transactions, or 56% of the overall traded
volume, while the most actively traded bond was the 10-year benchmark with EUR
11.6 billion worth of transactions followed by the 10-year bond, maturing on
20/7/2017 with EUR 2.8 billion. Of the 5,106 orders executed on HDAT, 48.55%
were “buy” orders and 51.45% “sell” orders.