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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.

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