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.