Developments in the Greek government bond market - October 2005
03/11/2005 - Press Releases
On international government bond markets sentiment was
negative during October with government bond yields rising significantly along
the entire maturity spectrum. The main factor driving bond yields higher was
investors' increasing concern that high energy prices might feed into higher
inflation. Moreover, Fed and ECB officials intensified their rhetoric on the
need to remain vigilant on inflation, triggering markets to discount further
monetary tightening in the months to come. According to September data, CPI
inflation reached its highest levels in the US and the Euro-zone over the last
three years.
In the Greek electronic secondary securities market (HDAT)
government bonds performance was negative, in line with the rest of the Euro-zone
markets. Short and medium-term benchmark bond yields rose by around 25 basis
points (bps) and the 32-year bond yield rose by 20 bps. Therefore, the yield
curve flattened (bearish flattening) while moving upwards with the 3 to 32-year
yield gap narrowing to 130 bps from 135 bps in September. The 10-year benchmark
bond yield reached the level of 3.59% at the end of October from 3.35% on
September 30 and after having touched an historic low of 3.21% on September 22.
Despite this correction, the average monthly yield spread between the Greek and
the German 10-year benchmark bond yields declined to 20 bps from 21 bps during
the previous two months.
Benchmark bond prices recorded significant losses
particularly at the long end of the curve with the 20-year and the 32-year bond
prices falling by 334 and 380 bps respectively during the month. The 3-year bond
price closed at 100.23 at the end of October from 100.90 on September 30 while
the 10-year bond price fell to 100.81 from 102.87 respectively.
Trading activity remained intense on HDAT in October with the
trading volume recording EUR 76.44 billion worth of transactions compared to EUR
78.73 billion in September. The daily average turnover rose to EUR 3.82 billion
compared to EUR 3.58 billion in September. Investors' interest was mainly
focused on bonds with remaining maturity between 7 and 10 years, which absorbed
EUR 45.76 billion or 60% of the overall traded volume. The most actively traded
bond was the 10-year benchmark that recorded EUR 27.38 billion worth of
transactions followed by the 15-year bond maturing on 11/1/2014 with EUR 8.05
billion. Of the 13,700 orders executed on HDAT 52.1% were "buy" orders
and 47.9% "sell" orders.