Press Releases

Developments in the Greek government bond market - February 2007

06/03/2007 - Press Releases

Government bonds had a strong performance on international markets in February after two months of losses. Government bond yields fell on all maturities with the most significant decline at the short end of the US yield curve, around 30 basis points (bps). In the Euro-zone markets, the decline in yields was more pronounced on 10-year maturity bonds, around 15 bps, as investors expect the ECB to increase interest rates by 25 bps at its next meeting in March. Amongst the factor contributing to the improvement in bond markets sentiment were statements made at the Federal Reserve (FED) Open Market Committee meeting on January 31, and reiterated during February by the FED Chairman, according to which inflation in the US was moderating while the economy remains sound. This helped eased market concern about inflation risk and reinforced expectations of monetary policy easing by the FED during the second half of 2007. In addition, towards the end of the month, the intensification of geo-political tensions in the middle-east and worries about the US sub-prime mortgage market led to some safe-haven flows from equity to fixed-income markets. Finally, the Bank of Japan increased interest rates by 25 bps, to 0.5%, on February 21.

On the Greek electronic secondary securities market (HDAT), government bond yields fell and prices rose in line with the performance seen in the rest of the Euro-zone markets, recovering the losses made during the previous month. The 10-year benchmark bond yield recorded the biggest drop, by 16 bps, to 4.20% at the end of February from 4.36% a month earlier. The yields of the 3-year and the new 30-year benchmark bond (maturing on 20/9/2040) that started trading on HDAT on February 1 fell by 11 bps (considering rounding at the second decimal) to, respectively, 3.96%, from 4.06% at the end of January, and to 4.46% from 4.58% on the first day of trading. Thus, the steepness of the yield curve (measured as the yield difference between the 30 and the 3-year bond yields) remained virtually unchanged at around 51-52 bps as it was at the end of January. Finally, the average monthly spread between the Greek and the German 10-year benchmark bond yields narrowed slightly to 25 bps from 26 bps during the previous three months.

Benchmark bond prices rose between 28 and 194 bps in February. The highest gains were recorded by the new 30-year bond that closed at 102.25 at the end of February from 100.31 on its first day of trading on February 1. The 3-year bond price rose to 98.77 at the end of February from 98.49 on January 31 and the 10-year bond price to 100.73 from 99.45.

Trading volume on HDAT in February amounted to EUR 45.29 billion worth of transactions compared to EUR 64.31 billion in January and to EUR 64.91 billion in February 2006. The daily average turnover was EUR 2.38 billion compared to EUR 2.92 billion during the previous month. Trading activity was mainly focused on bonds with remaining maturity between 7 and 15 years, which absorbed EUR 29.05 billion worth of transactions, or 64% of the overall traded volume. The most actively traded bond was the 10-year benchmark with EUR 16.4 billion worth of transactions followed by the 10-year bond, maturing 20/7/2016, with EUR 8.8 billion. Of the 8,026 orders executed on HDAT, 50.7% were “buy” orders and 49.3% “sell” orders.

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