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Developments in the Greek government bond market - July 2009

07/08/2009 - Press Releases

In July, the prices of government bonds in international markets picked up slightly. In the course of the month there were encouraging sings of renewed investor interest in euro area government bonds with low credit ratings ("peripheral" markets). One major factor behind this development was the increased risk appetite on the part of investors, although marked uncertainty remains as to the exact timing and sustainability of the economic recovery. At end-July, the yield spread between the bonds of the so-called periphery and the correspondent German bonds narrowed significantly, returning to the levels recorded before the last intensification of the financial crisis in October 2008.

On the Greek electronic secondary securities market (HDAT), Greek government bond yields fell considerably, particularly on medium to long-term maturity bonds, in line with the performance seen in the rest of the “peripheral” Euro-zone markets. The biggest decline was recorded in the 10-year and the 15-year benchmark bond yields that plunged by 48 basis points (bps) to 4.58% and 5.03% respectively at the end of July. The 30-year yield fell by 45 bps to 5.33%, while the 3-year benchmark bond yield fell by 25 bps to 2.45%. As a result, the yield curve flattened, with the difference between the 30- and the 3-year bond yields narrowing to 289 bps from 309 bps at the end of June. In addition, the average monthly spread between the Greek and the German 10-year bond yields narrowed considerably in July to 151 bps from 179 bps in June.

As for benchmark bond prices, they rose significantly along the whole maturity spectrum, with the 30-year bond price recording the highest gain to 88.94 at the end of July from 83.01 at the end of June. The 10-year bond price rose to 111.11 on July 31 from 107.24 on June 30, and the 3-year bond price increased to 104.66 from 104.14 respectively.

Trading volume on HDAT in July amounted to EUR 18.19 billion worth of transactions, compared with EUR 27.77 billion in June and EUR 29.17 billion in July 2008. The daily average turnover was EUR 791 million, compared with EUR 1.32 billion during the previous month. Investor interest was mainly focused on bonds with maturity between 7 and 15 years, which absorbed EUR 11.8 billion worth of transactions, or 65% of the overall traded volume. The most actively traded bonds were the 10-year and the 5-year benchmarks, with respectively EUR 10.2 billion and EUR 2.7 billion worth of transactions. Of the 3,464 orders executed on HDAT, 57.3% were “buy” orders and 42.7% “sell” orders.

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