Developments in the Greek government bond market - January 2004
05/02/2004 - Press Releases
Positive sentiment permeated through international bond
markets for a second month running in January and government bond prices closed
the month at higher levels as compared to the end of December. To this
performance contributed the economic data released during the month that was
consistent with an ongoing gradual recovery of global activity while inflation
remained subdued. In addition, a supportive factor for Euro-zone bonds was the
strength of the Euro that reached an historic high of 1.29 versus the USD.
However, a significant correction in prices occurred at the end of the month
following the FOMC meeting on January 28, which erased part of the gains
recorded earlier. Indeed, despite the FED leaving interest rates unchanged at
the historical low of 1%, its wording in the minutes led investors to believe
that an interest rate rise might occur sooner than previously anticipated.
On the Greek electronic secondary securities market (HDAT)
government bonds traded higher in line with the rest of the Euro-zone bonds.
Price gains were in the range of 5-42 basis points amongst the benchmark bonds,
with the 5-year bond (maturing on 18/4/2008) recording the highest gains. On
January 13, a new 10-year benchmark bond was launched, with a 4.50% coupon and
maturing on 20/5/2014. It closed at 100.31 (with a yield of 4.46%) at the end of
January compared to 100.14 (4.48%) at the issuance. Because of the new benchmark,
the 10-year Greek-German yield spread widened to around 20 basis points (bps)
from 12 bps in December 2003 (calculated with the old benchmark). The difference
in spread is due to the different maturity dates of the Greek and the German
10-year benchmarks: the Greek bond matures around five months later (20/5/2014)
than the German (4/1/2014).
The yield curve shifted downwards while steepening slightly
as 3 to 5-year yields fell around 10 basis points while the long end of the
curve remained almost unchanged with the 20-year yield declining to 4.99% at the
end of January from 5.00% on December 31. Thus, the 3 to 20-year bond yield
spread widened to 221 bps at the end of January from 212 bps at the end of
Market turnover on HDAT was EUR 64.76 billion in January
after EUR 34.02 billion in December 2003, with an increase of 8.5% with respect
to January 2003 (when it was EUR 59.70 billion). Investors' interest focused on
medium to long-term maturity bonds (7 to 20-year bonds) that absorbed 75.1% of
the overall volume. Amongst individual bonds traded on HDAT, the 10-year bond
maturing on 20/5/2013 (the previous benchmark) recorded the highest traded
volume with EUR 15.09 billion, followed by the new 10-year benchmark bond with
EUR 9.57 billion. "Buy" and "sell" orders in HDAT were
almost equal. Of the 11,816 orders executed in HDAT during January, 50.3% were
"sell" orders and 49.7% "buy" orders.