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Developements in the Greek government bond market - July 2007

07/08/2007 - Press Releases

Government bonds recorded gains in July on international markets recovering all the losses made during the previous month. Bond prices rose and yields fell strongly, particularly during the second half of July, following an escalation of the crisis in the US sub-prime mortgage market and increasing market worries of negative spill-over effects into the broader US economy. All this led investors to shift funds from equity to government bond markets and especially to those with the highest credit rating. As a consequence, in the Euro-zone markets, the spreads between the 10-year yield on lower-rated Euro-zone government bonds and the equivalent German bond yield widened noticeably towards the end of the month. In addition, concerns about the US growth outlook led to a weakening of the USD, with the EUR recording an historic high of 1.3827 against the USD on July 20.

On the Greek electronic secondary securities market (HDAT), government bond yields fell along the whole maturity spectrum, in line with the performance seen in the rest of the Euro-zone markets. The 30-year benchmark bond yield fell by 11 basis points (bps) to 4.92% at the end of July from 5.03% at the end of June while the 15 and the 10-year benchmark bond yields fell by 10 bps to respectively 4.87% and 4.69% from 4.97% and 4.79%. At the short end of the curve the 3-year bond yield fell marginally less by 9 bps to 4.44% at the end of July from 4.53% a month earlier. As a consequence, the yield curve became flatter while shifting downwards, with the yield difference between the 30 and the 3-year bond yields narrowing to 47 bps at the end of July from 50 bps at the end of June. Finally, the average monthly spread between the Greek and the German 10-year benchmark bond yields widened in July to 27 bps from 22 bps in June.

Benchmark bond prices rose in the range of 24 to 175 bps in July. The 30-year bond price rose to 94.75 on July 31 from 93.00 on June 29, the 10-year bond price rose to 96.85 from 96.07 and the 3-year bond price to 98.14 from 97.9.

Trading volume on HDAT in July was EUR 55.74 billion worth of transactions compared to EUR 58.85 billion in June and to EUR 47.12 billion in July 2006. The daily average turnover was EUR 2.53 billion compared to EUR 2.80 billion during the previous month. Trading activity focused on bonds with remaining maturity between 5 and 15 years, which absorbed EUR 40 billion worth of transactions, or 72% of the overall traded volume. The most actively traded bond was the 10-year benchmark with EUR 21.2 billion worth of transactions followed by the 5-year bond, maturing 20/8/2012, with EUR 6.9 billion. Of the 9,868 orders executed on HDAT, 50.7% were “buy” orders and 49.3% “sell” orders.

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