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.