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Developments in the Greek government bond market - April 2005

16/05/2005 - Press Releases

International government bond markets recorded significant gains during April with bond yields falling to historically low levels (a new historic low of 3.38% was recorded by the 10-year German bond). The positive performance of fixed-income markets followed the release of generally weaker than expected economic data both in the US and in the Euro-zone. Another supportive factor was the weakness in corporate and equity markets. Moreover, the increased downside risks to the US and the Euro-zone growth outlook, partially related to persistently high oil prices led to a revision of interest rates forecasts. In particular, investors scaled down expectations for larger than 25 basis points interest rates increases by the FED and postponed to 2006 expectations of interest rates hikes by the ECB.

Greek government bonds trading on the electronic secondary securities market (HDAT) had a positive performance in line with the rest of the European markets. Bond yields fell significantly with respect to the previous month particularly at the short end of the curve. The 3-year benchmark bond yield declined by 25 basis points (bps) to 2.60% at the end of April from 2.85% a month earlier, while, during the same period of time the 10-year benchmark bond yield fell by 19 bps to 3.67% from 3.86% and the 32-year bond yield by 15 bps to 4.29% from 4.44%. As a result the yield curve steepened in April with the 3 to 32-year yield gap widening to 169 bps from 158 bps at the end of March. Moreover, the average monthly yield spread between the Greek and the German 10-year benchmark bond yields increased to 24 bps from 20 bps in March. This was partially the consequence of increased risk aversion globally that led to an underperformance of peripheral government bonds (such as Italy and Greece) with respect to their Euro-zone counterparts.

The increase in bond prices in HDAT during April ranged between 75 and 258 bps with the 32-year bond recording the highest gains and closing at 103.59 at the end of the month from 101.01 on March 31. The 3-year bond price rose by 75 bps to 100.86 at the end of April from 100.11 a month earlier and the 10-year bond price by 156 bps to 100.16 from 98.6 respectively.

Market turnover on HDAT declined in April to EUR 46.83 from EUR 56.06 billion in March and compared to EUR 59.98 billion in April 2004. The daily average turnover was EUR 2.3 billion compared to 2.7 billion in March. Investors' interest focussed on bonds with remaining maturity between 7 and 15 years, which absorbed EUR 29.76 billion or 64% of the overall traded volume. Amongst individual bonds, the new 10-year benchmark was the most actively traded with EUR 12.47 billion worth of transactions, followed by the 10-year bond maturing on 20/5/2014 with EUR 5.82 billion. Of the 8,001 orders executed on HDAT 49.07% were "buy" orders and 50.93% "sell" orders.

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