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Developments in the Greek government bond market - May 2009

09/06/2009 - Press Releases

Government bond prices fell and yields rose in May on international markets, particularly on long-term maturity bonds, while significant gains were recorded in international equity markets. These developments were the result of the improvement in market sentiment and in investor expectations about future economic growth after the release of better-than-expected confidence indicators. In addition, the heavy public borrowing added to the selling pressure particularly on long-term government bonds. On the contrary, the reduction of official interest rates by the ECB on May 7, to the historic low of 1%, had a positive impact on short-term European bonds that either recorded small losses or, in some countries such as Greece, recorded gains.

 On the Greek electronic secondary securities market (HDAT), Greek government bond yields fell on short-term maturities but rose at the long end of the yield curve. In addition, the ongoing improvement in market sentiment led to a further narrowing of yield spreads between Greek and German benchmark bonds. Specifically, the 3-year benchmark bond yield fell by 39 basis points (bps) to 3.09% at the end of May from 3.48% at the end of April and the 5-year yield by 31 bps to 4.23% from 4.54%. On the long end of the yield curve, the 30-year benchmark bond yield recorded the biggest rise, by 22 bps, to 5.87% at the end of May from 5.65% at the end of April and the 10-year benchmark bond yield rose by 12 bps to 5.47% from 5.35%. As a result, the yield curve was considerably steeper at the end of May, with the yield difference between the 30 and the 3-year bond yields widening to 278 bps from 217 bps a month earlier. In addition, the average monthly spread between the Greek and the German 10-year bond yields narrowed further significantly in May to 179 bps from 232 bps in April.

Benchmark bond prices rose considerably at the short end of the yield curve, with the 3-year bond trading at 103.2 on May 29 compared to 102.2 on April 30 and the 5-year bond price rising to 105.72 from 104.33 respectively. On the contrary prices fell at the long-end of the yield curve, as the 30-year bond was trading at 82.01 at the end of May compared to 84.69 at the end of April and the 10-year bond at 103.97 compared to 104.96 respectively.

Trading volume on HDAT in May increased to EUR 20.22 billion worth of transactions from EUR 12.31 in April and compared to EUR 30.21 billion in May 2008. The daily average turnover was EUR 1.01 billion compared to EUR 616 million during the previous month. Investor interest was mainly focused on bonds with remaining maturity between 10 and 15 years, which absorbed EUR 11.16 billion worth of transactions, or 55% of the overall traded volume. The most actively traded bonds were the 10-year and the 5-year benchmarks with respectively EUR 10.5 billion and EUR 2.8 billion worth of transactions. Of the 3,939 orders executed on HDAT, 55.5% were "buy" orders and 45.5% "sell" orders.

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