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Developments in the Greek government bond market - July 2006

03/08/2006 - Press Releases

On international markets, government bonds had a positive performance in July with yields declining along the whole maturity spectrum. The main reasons for the decline in yields were escalating geopolitical tensions, that led oil prices to temporarily trade above USD 78 per barrel in New York, the Federal Reserve (Fed) Chairman's testimony to the U.S. Senate Banking Committee on July 19 stating that a moderation in economic growth is under way, and economic data released in the U.S., which provided further evidence of a slow down in growth. All the above mentioned reasons, led many investors to adjust downwards their expectations of further interest rate increases by the Fed providing a boost to government bonds. On the other hand, Bank of Japan 25 basis points (bps) increase in interest rates, for the first time after six years, and evidence of an acceleration of economic growth and inflation in the Euro-zone did not have a significant influence on bond market performance at this juncture.

On the Greek electronic secondary securities market (HDAT), benchmark bond yields declined particularly on medium to long-term maturities, in line with developments in the rest of the Euro-zone markets. The decline in yields at the short end of the curve was limited by market expectations of further interest rates increases by the European Central Bank. The 3-year bond yield declined by 9 bps to 3.73% at the end of July from 3.82% a month earlier, while the 10 and the 30-year bond yields fell respectively by 16 and 14 bps to 4.25% and 4.66% from 4.40% and 4.80%. Therefore, the yield curve flattened while shifting downwards as the 3 to 30-year yield gap narrowed to 93 bps at the end of July from 98 bps on June 30. Finally, the average monthly spread between the Greek and the German 10-year benchmark bond yields narrowed slightly to 31 bps from 32 bps during the previous three months.

Benchmark bond prices rose between 28 and 225 bps. The strongest gains were recorded by the 30-year bond price that closed at 97.43 on July 31 compared to 95.18 on June 30, while the 3-year bond price rose to 99.08 from 98.80 and the 10-year bond price to 94.75 from 93.51.

Trading volume on HDAT in July recorded EUR 47.12 billion worth of transactions compared to EUR 49.72 billion in June and EUR 52.48 billion in July 2005. The daily average turnover was EUR 2.24 billion compared to EUR 2.37 billion in June. Trading activity was mainly focused on bonds with remaining maturity between 7 and 15 years, which absorbed EUR 33.9 billion worth of transactions, or 72% of the overall traded volume. The most actively traded bond was the 10-year benchmark with EUR 24.5 billion worth of transactions followed by the 10-year bond, maturing on 20/7/2015, with EUR 5.28 billion. Of the 8,310 orders executed on HDAT, 47.81% were ''buy'' orders and 52.19% ''sell'' orders.

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