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Developments in the Greek government bond market - January 2009

09/02/2009 - Press Releases

On international markets government bonds recorded significant losses in January, in particular at the long end of the yield curve. Among the major factors leading to this performance was mounting investor worries about ample new debt supply by governments worldwide needed to fund economic stimulus plans. These worries more than offset the positive influence on government bonds of further evidence that the global economic slowdown was worsening. Furthermore, European government bonds with lower credit ratings were also negatively affected by the news that the rating agency Standard & PoorΆs downgraded the sovereign credit ratings on different Euro-zone countries, among which also Greece. Finally, the reduction of official interest rates by the European Central Bank by further 50 basis points (bps) το 2% on January 15, limited losses on short-term government bonds.

On the Greek electronic secondary securities market (HDAT), Greek government bonds recorded significant losses with the exception of the 3-year benchmark bond that reported strong gains. Moreover, yield spreads with respect to equivalent German bonds widened further. Specifically, the 3-year benchmark bond yield fell by 97 bps to 3.40% at the end of January from 4.37% at the end of December, while the 10-year benchmark bond yield recorded the highest increase, by 53 bps, to 5.76% from 5.23% and the 30-year benchmark bond yield rose by 14 bps to 6.23% from 6.09%. As a result, the yield curve steepened markedly, with the yield difference between the 30 and the 3-year bond yields widening to 283 bps on January 30 from 172 bps on December 31. In addition, the average monthly spread between the Greek and the German 10-year bond yields widened to 250 bps from 201 bps in December.

Benchmark bond prices fell between 162 bps and 366 bps, with the exception of the 3-year benchmark bond price that rose by 200 bps to 100.80 at the end of January from 98.80 at the end of December. The 10-year bond price recorded the highest decline to 91.64 at the end of January from 95.30 at the end of December while the 30-year bond price fell to 77.68 from 79.30.

Trading volume on HDAT in January amounted to EUR 12.08 billion worth of transactions compared to EUR 5.45 in December and to EUR 43.73 billion in January 2008. The daily average turnover was EUR 604 million compared to EUR 260 million during the previous month. Investor interest was mainly focused on bonds with remaining maturity between 7 and 10 years, which absorbed EUR 4.65 billion worth of transactions, or 38% of the overall traded volume, while the most actively traded bond was the 10-year benchmark with EUR 3.5 billion worth of transactions. Of the 2,322 orders executed on HDAT, 48.9% were “buy” orders and 51.1% “sell” orders.

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