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Developments in the Greek government bond market - October 2008

05/11/2008 - Press Releases

Mixed performance and high volatility characterized international government bond markets in October. Euro-zone government bonds with the highest credit ratings ended the month with significant gains, as opposed to the losses recorded on the rest of the Euro-zone markets, while in the US government bond prices rose (and yields fell significantly) on the short end of the curve while they fell on the long end (with a respective increase in yields). Amongst the major factors leading to this performance were the introduction by several governments across the world of significant measures to stabilize the banking system and the coordinated easing of monetary policy, on October 8, by major Central Banks, among which the Federal Reserve (FED) and the European Central Bank (ECB), along with their continued strong injections of liquidity. Moreover, the FED cut official interest rates by a further 50 basis points (bps) on October 29 to the historical low of 1%. All these actions led to the improvement of market confidence and the decline in money market rates. However, because of the uncertainty remaining in global financial markets and fears of a protracted global recession investors focused on the most secure form of investments such as Euro-zone government bonds with the highest credit rating.

On the Greek electronic secondary securities market (HDAT), government bonds had a negative performance, with yields rising significantly particularly on 10 and 15-year maturities. Moreover, yield spreads with respect to equivalent German bonds increased further noticeably. More in details, the 3-year benchmark bond yield rose by 8 basis points (bps) to 4.31% at the end of October from 4.23% at the end of September, the 10-year benchmark bond yields rose by 54 bps to 5.50% from 4.96% and the 30-year benchmark bond yield rose by and 13 bps to 5.57% from 5.44%. As a result, the yield curve steepened further, with the yield difference between the 30 and the 3-year bond yields widening to 126 bps at the end of October from 121 bps a month earlier. In addition, the average monthly spread between the Greek and the German 10-year bond yields widened to 103 in October from 77 bps in September.

Benchmark bond prices fell between 14 and 400 bps, with the 15-year bond price recording the highest decline to 89.35 on October 31 from 93.35 on September 30. Moreover, the 10-year bond price fell by 387 bps to 93.34 at the end of October from 97.21 a month earlier while the 3-year bond price declined by 14 bps to 98.84 from 98.98.

Trading volume on HDAT in October amounted to EUR 13.79 billion worth of transactions compared to EUR 26.30 billion in September and to EUR 40.75 billion in October 2007. The daily average turnover was EUR 627 million compared to EUR 1.2 billion during the previous month. Investor interest was mainly focused on bonds with remaining maturity between 7 and 10 years, which absorbed EUR 7.4 billion worth of transactions, or 54% of the overall traded volume, while the most actively traded bond was the 10-year benchmark with EUR 6.6 billion worth of transactions followed by the 5-year benchmark bond, maturing on 20/8/2013 with EUR 1.5 billion. Of the 2,601 orders executed on HDAT, 45.27% were "buy" orders and 54.73% "sell" orders.

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