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Developments in the Greek government bond market - June 2008

04/07/2008 - Press Releases

Government bond yields rose sharply, particularly on short-term maturities, during the first half of June on international markets. However, during the second part of the month, while Euro-zone bond yields stabilized at high levels, in the US market the initial losses were more than offset by gains and government bond yields ended the month at lower levels than in May, especially at the long end of the curve. This performance, on the one hand, was the result of mounting expectations among investors of an imminent increase in official interest rates by the European Central Bank (ECB), in light of fast accelerating inflation in the Euro-zone. On the other hand, despite equally worrisome inflation data released in the US and the continuing rise in oil and food prices, expectations of monetary policy tightening by the Federal Reserve (FED) were scaled back by investors during the second part of June, following the publication of weak economic data and further deteriorating business and consumer confidence.

On the Greek electronic secondary securities market (HDAT), government bond yields rose markedly in June, particularly at the short end of the yield curve, in line with the performance seen in the rest of the Euro-zone. In addition, yield spreads with respect to German bonds widened noticeably, with the average monthly spread between the 10-year benchmark bond yields rising to 62 basis points (bps) in June from 54 bps in May. The 3-year benchmark bond yield rose by 51 bps to 5.14% at the end of June from 4.63% at the end of May, the 10-year benchmark bond yield rose by 36 bps to 5.32% from 4.96% and the 30-year benchmark bond yield closed at 5.56% from 5.37% with an increase of 19 bps. As a result, the yield curve became considerably flatter while shifting upwards, with the yield difference between the 30 and the 3-year bond yields narrowing to 42 bps at the end of June from 73 bps at the end of May.

Benchmark bond prices fell between 118 and 303 bps, with the 15-year bond price showing the biggest decline to 91.20 on June 30 from 94.23 a month earlier. In addition, the 3-year bond price fell to 96.65 from 97.83 and the 10-year bond price declined to 94.43 from 97.15.

Trading volume on HDAT in June amounted to EUR 26.69 billion worth of transactions compared to EUR 30.21 billion in May and to EUR 58.85 billion in June 2007. The daily average turnover was EUR 1.3 billion compared to EUR 1.4 billion during the previous month. Investor interest was mainly focused on bonds with remaining maturity between 10 and 15 years, which absorbed EUR 10 billion worth of transactions, or 37% of the overall traded volume, while the most actively traded bond was the 10-year benchmark with EUR 9.4 billion worth of transactions followed by the 5-year benchmark with EUR 4.8 billion. Of the 4,999 orders executed on HDAT, 50.5% were "buy" orders and 49.5% "sell" orders.

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