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Developments in the Greek government bond market - January 2006

06/02/2006 - Press Releases

On international markets government bonds recorded a negative performance in January. Government bond yields rose, particularly on long term maturities, and yield curves reversed part of the significant flattening that occurred during the previous month in the US and in the Euro-zone. Amongst the factors driving yields higher, were economic data releases in the Euro-zone suggesting that the economic recovery in the euro area could be broadening. Moreover, a positive equity markets performance and a large increase in oil prices during the month (with NYMEX crude oil futures rising above USD 68 per barrel at the end of January from around USD 62 per barrel at the end of December) exerted a negative influence on bond market developments. Amid these developments, investors also focused on the prospect of further interest rates increases by the Federal Reserves (FED) and the European Central Bank in the near future. The 25 bps interest rates increase by the FED on January 31 did not have any major impact on markets as it was widely expected.

In the Greek electronic secondary securities market (HDAT) bond yields increased especially on medium to long-term maturities in January, in line with the rest of the Euro-zone markets. On the short end of the curve, the 3-year yield rose by 10 basis points (bps) to 3.10% at the end of January from 3.00% on December 30, while the 32-year yield rose by 22 bps to 4.14%, from 3.92%. Consequently, the yield curve became steeper, with the 3 to 32-year yield gap widening to 104 bps compared to 92 bps in December. Finally, the yield on the new 10-year benchmark (maturing on 20/7/2016 and with a coupon of 3.60% and that started trading on HDAT on January 13) rose to 3.77% at the end of January from 3.56% on the first day of trading. After the introduction of the new 10-year benchmark, the average monthly spread between the Greek and the German 10-year benchmark bond yields rose to 26 bps in January from 20 bps during the previous three months.

Benchmark bond prices fell in the range of 22-417 bps, with the largest loss being recorded by the 32-year bond that closed at 106.14 at the end of January from 110.31 a month earlier. The 3-year bond price fell to 99.52 on January 31 from to 99.74 at the end of December and the new 10-year benchmark bond price fell to 98.46 at the end of January from 100.29 on the first day of trading on January 13.

Trading volume on HDAT rose in January to EUR 54.93 billion worth of transactions compared to EUR 41.87 billion in December 2005 and EUR 80 billion in January 2005. The daily average turnover was EUR 2.62 billion compared to EUR 1.99 billion in December 2005 and EUR 4.00 billion in January 2005. Trading activity was mainly focused on bonds with remaining maturity between 7 and 15 years, which absorbed EUR 39.84 billion, or 73%, of the overall traded volume. The most actively traded bond was the 10-year bond maturing on 20/7/2015 that recorded EUR 15.69 billion worth of transactions followed by the new 10-year benchmark with EUR 10.90 billion. Of the 9,929 orders executed on HDAT, 49.08% were "buy" orders and 50.92% "sell" orders.

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