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Developments in the Greek government bond market - February 2006

07/03/2006 - Press Releases

On international markets government bonds performance in February was characterized by a general decline in bond yields at the very long end of the curve (30-year maturity) and an increase at the short end that led to a flattening, in the Euro-zone, and inversion, in the US, of the yield curve. The economic data released during the month showed a continued improvement of the business climate in the Euro-zone, ongoing positive growth in the US and relatively contained inflationary pressures on both sides of the Atlantic. In response to these economic developments, market participants became increasingly concerned about future increases in interest rates by the Federal Reserve and the European Central Bank. At the same time, demand for long-dated bonds by pension funds and insurance companies, along with investors' confidence that price stability will be maintained in the long term, supported the long end of the yield curve.

In the Greek electronic secondary securities market (HDAT) bond yields increased, particularly on short-term maturities, with the exception of the 30-year yield that fell marginally. On the short end of the curve, the 3-year yield rose by 7 basis points (bps) to 3.17% at the end of February from 3.10% at the end of January, while the 30-year yield fell slightly to 4.13% from 4.14%. As a consequence, the yield curve became flatter, in line with the dynamics seen in the rest of the Euro-zone markets, with the 3 to 30-year yield gap narrowing to 97 bps compared to 104 bps in January. Moreover, the yield on the new 10-year benchmark (maturing on 20/7/2016) rose to 3.80% at the end of February from 3.77% on January 31. The average monthly spread between the Greek and the German 10-year benchmark bond yields rose to 28 bps in February from 26 bps in January.

Benchmark bond prices fell slightly in the range of 12-19 bps, with the exception of the 30-year bond price that rose to 106.32 at the end of February from 106.14 at the end of January. The 3-year bond price fell to 99.39 at the end of February from 99.52 on January 31 and the new 10-year benchmark bond price recorded the highest loss falling to 98.27 on February 28 from 98.46 at the end of January.

Trading volume on HDAT rose in February to EUR 64.91 billion worth of transactions compared to EUR 54.93 billion in January and EUR 59.89 in February 2005. The daily average turnover was EUR 3.25 billion compared to EUR 2.62 billion in January. Trading activity was mainly focused on bonds with remaining maturity between 7 and 15 years, which absorbed EUR 47.42 billion, or 73%, of the overall traded volume. The most actively traded bond was the 10-year bond maturing on 20/7/2015 that recorded EUR 22.22 billion worth of transactions followed by the new 10-year benchmark with EUR 9.59 billion. Of the 11,605 orders executed on HDAT, 49.04% were "buy" orders and 50.96% "sell" orders.

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