Developments in the Greek government bond market - June 2007
09/07/2007 - Press Releases
Government bonds had again a negative performance in June on
international markets. Bond prices fell and yields rose sharply until mid June
while part of the losses were recovered during the second half of the month as
market sentiment improved slightly. The decline in bond prices and increase in
yields was mainly determined by a reassessment of the global growth outlook,
with its implications for future inflationary pressures, and growing investor
concern over rising interest rates. This reassessment followed the release of
positive economic data both in the US and in the Euro-zone that led investors to
remove previous expectations of interest rates cut by the Federal Reserve within
2007 while reinforcing their view of further monetary policy tightening by the
European Central Bank (ECB). In addition, the ECB increased interest rates by 25
basis points (bps) on June 6, reiterating that its monetary policy remains
accommodative and liquidity ample. During the second part of June, however, the
release of better-than-expected inflation data in the US and renewed worries
about the sub-prime mortgage market led to a partial recovery of the early June
losses.
On the Greek electronic secondary securities market (HDAT),
government bond yields rose noticeably, particularly on long-term maturity bonds
(10 to 30-year maturity), in line with the performance seen in the rest of the
Euro-zone markets. The 10-year and the 30-year benchmark bond yields rose by 19
basis points (bps) to 5.03% and 4.79% respectively at the end of June from 4.84%
and 4.60% at the end of May, while the yield on the new 15-year benchmark bond (maturity
20/3/2024) rose by around 20 bps to 4.97% from 4.76%. At the short end of the
curve the increase in yields was less marked with the 3-year bond yield rising
by 8 bps to 4.52% at the end of June from 4.44% a month earlier. As a
consequence, the yield curve steepened considerably while shifting upwards, with
the yield difference between the 30 and the 3-year bond yields widening to 51
bps at the end of June from 40 bps at the end of May. Finally, the average
monthly spread between the Greek and the German 10-year benchmark bond yields
declined further in June to 22 bps from 23 bps in May and 24 bps in April.
Benchmark bond prices fell between 9 and 299 bps in June. The
highest losses were recorded by the 30-year bond price that fell to 93.00 on
June 29 from 95.99 on May 31, while the 10-year bond price fell to 96.07 from
97.49 and the 3-year bond price to 97.90 from 97.99.
Trading volume on HDAT in June was EUR 58.85 billion worth of
transactions compared to EUR 56.58 billion in May and to EUR 49.72 billion in
June 2006. The daily average turnover was EUR 2.80 billion compared to EUR 2.69
billion during the previous month. Trading activity focused on bonds with
remaining maturity between 5 and 15 years, which absorbed EUR 41 billion worth
of transactions, or 69.7% of the overall traded volume. The most actively traded
bond was the 10-year benchmark with EUR 17.7 billion worth of transactions
followed by the 10-year bond, maturing 20/7/2016, with EUR 8.9 billion. Of the
10,609 orders executed on HDAT, 47,8% were "buy" orders and 52,2%
"sell" orders.