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Developments in the Greek government bond market - November 2007

06/12/2007 - Press Releases

Government bonds recorded strong gains on international markets in November, particularly in the US, with the exception of Euro-zone bonds with remaining maturity above ten years. Investor interest for more secure form of investment increased further during the past month amid mounting concerns that the current crisis in financial markets, and in the banking sector in particular, will extend well into 2008 with negative consequences for the global economy. In addition, the economic data released in the US were relatively weak and, moreover, the Federal Reserve (FED) revised lower its expectations for economic growth in the US in 2008, compared to the projections published in June. All this, reinforced market expectations for further interest rates cuts by the FED in the near future. At the same time, higher-than-expected inflation data published in the Euro-zone and fears of accelerating inflationary pressures, due mainly to the high level of oil prices, exerted a negative influence on the long end of the European yield curves.

On the Greek electronic secondary securities market (HDAT), government bond yields fell considerably in November, with the exception of the 15 and 30-year benchmark bond yields, in line with the performance seen in the rest of the Euro-zone markets. More in details, the 3-year bond yield recorded the biggest decline, by 15 basis points (bps), to 4.05% at the end of November from 4.20% at the end of October, the 10-year yield fell by 9 bps to 4.44% from 4.53% while the 15 and the 30-year bond yields rose respectively by 2 and 9 bps to 4.79% and 4.96% from 4.77% and 4.87%. As a result, the yield curve steepened significantly as the yield difference between the 30 and the 3-year bond yields widened to 91 bps at the end of November from 67 bps at the end of October. Finally, the average monthly spread between the Greek and the German 10-year benchmark bond yields widened in November to 32 bps compared to 28 bps in October as increasing risk-aversion led investors to focus on government bonds with the highest credit rating.

Benchmark bond prices rose between 28 and 76 bps for maturities until 10-year, while the 15 and the 30-year bond prices fell by 17 and 134 bps respectively. The 3-year bond price increased to 99.02 on November 30 from 98.74 at the end of October, the 10-year bond price rose to 98.86 from 98.16 while the 15 and the 30-year bond price fell to 99.00 and 94.11 from 99.17 and 95.45.

Trading volume on HDAT in November was EUR 40.35 billion worth of transactions compared to EUR 40.75 billion in October and EUR 64.56 in November 2006. The daily average turnover rose to EUR 1.83 billion compared to EUR 1.77 billion during the previous month. Investors’ interest was mainly focused on bonds with remaining maturity between 7 and 10 years, which absorbed EUR 19.6 billion worth of transactions, almost half of the overall traded volume, while the most actively traded bond was the 10-year benchmark with EUR 15.3 billion worth of transactions followed by the 5-year bond, maturing on 20/8/2012, with EUR 4 billion. Of the 7,118 orders executed on HDAT, 48.1% were “buy” orders and 51.9% “sell” orders.

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