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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.

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