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Developments in the Greek government bond market - May 2007

11/06/2007 - Press Releases

Negative sentiment dominated international government bond markets in May, with bond prices recording significant losses and yields rising to multi-year highs. This performance was mainly the result of growing investor uncertainty about the future course of monetary policy both in the US and in the Euro-zone. The economic data released during the month led to increased investors’ optimism about the prospects for the US economy while confirming strong growth developments in the Euro-zone. As a consequence, investors’ preference for riskier form of investment rose, driving world equity markets to new highs and government bond prices lower. In addition, major central banks, at a global level, continued to warn about the risk of inflationary pressures in an environment characterized by healthy growth and high global liquidity. These warnings enhanced investors’ concerns about the prospects of monetary policy remaining unchanged in the US and of higher interest rates in the Euro-zone in the near future.

On the Greek electronic secondary securities market (HDAT), government bond yields rose particularly at the short end of the curve, in line with the performance seen in the rest of the Euro-zone markets, and reflecting market expectations of further interest rates increases by the European Central Bank. The 3-year benchmark bond yield rose by 21 basis points (bps) to 4.44% at the end of May from 4.23% a month earlier, whereas the 30-year benchmark bond yield rose by 12 bps (considering the rounding) to 4.84% from 4.71%. As a consequence, the yield curve became flatter while shifting upwards, with the yield difference between the 30 and the 3-year bond yields narrowing to 40 bps at the end of May, from 48 bps at the end of April. The yield on the 10-year benchmark bond rose by 16 bps (considering the rounding) to 4.60% from 4.45% while the average monthly spread between the Greek and the German 10-year benchmark bond yields declined to 23 bps from 24 bps in April. At the end of May a new 15-year bond, with maturity date 20/3/2024 and coupon 4.70%, was issued via syndication. Its yield at the end of May was 4.76% compared to 4.73% on May 24, its first day of trading on HDAT.

Benchmark bond prices fell between 33 and 200 bps in April. The highest losses were recorded by long-term maturity bonds with the 30-year bond price trading at 95.99 at the end of May compared to 97.99 at the end of April and the 10-year bond price at 97.49 compared to 98.73. The 3-year bond price fell by 33 bps to 97.99 at the end of May from 98.32 at the end of April. Trading volume on HDAT in May was EUR 56.56 billion worth of transactions compared to EUR 58.98 billion in April and to EUR 51.10 billion in May 2006. The daily average turnover was EUR 2.69 billion compared to EUR 3.10 billion during the previous month.

Trading activity was mainly focused on bonds with remaining maturity between 7 and 15 years, which absorbed EUR 32.49 billion worth of transactions, or 57% of the overall traded volume. The most actively traded bond was the 10-year benchmark with EUR 20 billion worth of transactions followed by the 10-year bond, maturing 20/7/2016, with EUR 7.5 billion. Of the 10,049 orders executed on HDAT, 50.4% were “buy” orders and 49.6% “sell” orders.

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