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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.

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