Developments in the Greek government bond market - December 2008
12/01/2009 - Press Releases
Government bonds with the highest credit rating made further
strong gains on international markets in December, with the 10-year bond yield
in the US falling to the lowest level of the past fifty years, around 2%. They
were supported by a continuously deteriorating global economic outlook and
diminishing inflationary pressures that led investors to focus on the most
secure form of investments. In addition, the major central banks worldwide
reduced further interest rates during the month. The European Central Bank eased
monetary policy by 75 basis points (bps) on December 4, taking official rates to
2.5%, and the Federal Reserve decided to establish a target range for the
federal funds rate of 0 to 0.25% on December 16. Due to the high level of
uncertainty in financial markets, European government bonds with lower credit
ratings had a negative performance.
On the Greek electronic secondary securities market (HDAT),
government bonds recorded significant losses along the whole maturity spectrum,
and particularly on the long end of the yield curve. Moreover, yield spreads
with respect to equivalent German bonds widened further. The 3-year benchmark
bond yield rose by around 34 bps to 4.37% at the end of December from 4.04% at
the end of November, the 10-year benchmark bond yield increased by 38 bps to
5.23% from 4.85% and the 30-year benchmark bond yield rose by 61 bps to 6.09%
from 5.48%. As a result, the yield curve steepened significantly, with the yield
difference between the 30 and the 3-year bond yields widening to 172 bps on
December 31 from 144 bps on November 28. In addition, the average monthly spread
between the Greek and the German 10-year bond yields widened to 201 bps from 150
bps in November.
Benchmark bond prices fell between 67 bps and 758 bps, with
the 30-year bond price recording the highest decline to 79.30 at the end of
December from 86.88 at the end of the previous month. 15-year and 10-year bond
prices also recorded strong losses falling by respectively 394 and 278 bps to
88.87 and 95.30 on December 31 from 92.81 and 98.08 on November 28.
Trading volume on HDAT in December was again subdued and
amounted to EUR 5.45 billion worth of transactions compared to EUR 7.64 in
November and to EUR 21.36 billion in December 2007. The daily average turnover
was EUR 260 million compared to EUR 382 million during the previous month. The
most actively traded bond was the 10-year benchmark with EUR 1.2 billion worth
of transactions followed by the 5-year benchmark bond, maturing on 20/8/2013
with EUR 542 million. Of the 1,040 orders executed on HDAT, 43% were "buy"
orders and 57% "sell" orders.