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Developments in the Greek government bond market - December 2006

10/01/2007 - Press Releases

On international markets, government bonds recorded significant losses in December and yields rose on all maturities. Amongst the major factors leading to this performance were relatively healthy and better-than-expected economic data released in the US (in particular job market data) that caused expectation that there will be an interest rate cut by the Federal Reserve (FED) to be pushed out by markets. In addition, on December 7, the European Central Bank (ECB) increased official interest rates by 25 basis points (bps) to 3.50%. While reiterating that the outlook for future economic growth in the Euro-zone remains positive, the ECB stated that future monetary developments must be monitored very closely. This led investors to anticipate further monetary policy tightening in the Euro area during the first part of 2007. On the contrary, the FED left interest rates unchanged at 5.25% on December 12, though stressing that some inflation risks remain and that future changes in interest rates will depend on the evolution of both inflation and economic growth.

On the Greek electronic secondary securities market (HDAT), government bonds recorded losses and the yield curve shifted upwards by more than 20 bps, in line with the performance seen in the rest of the Euro-zone markets. More specifically, 3-year bond yields rose by 22 bps to 3.97% at the end of December from 3.75% at the end of November, 10-year yields rose by around 23 bps to 4.19% from 3.97% and 30-year bond yields rose by 21 bps to 4.45% from 4.24%. The steepness of yield curve (measured as the yield difference between the 30 and the 3-year bond yields) remained virtually unchanged at 48 bps at the end of December as it was a month earlier. Finally, the average monthly spread between the Greek and the German 10-year benchmark bond yields was also unchanged at 26 bps as in November.

Benchmark bond prices fell between 48 and 368 bps in December. The 3-year bond price fell to 98.64 at the end of December from 99.12 at the end of November. The 10-year bond price fell by 169 bps to 95.34 from 97.03 and the 30-year bond, which recorded the highest loss, fell to 100.79 from 104.47.

Trading volume on HDAT in December amounted to EUR 45.01 billion worth of transactions compared to EUR 64.56 billion in November and to EUR 41.87 billion in December 2005. The daily average turnover was EUR 2.37 billion compared to EUR 2.93 billion during the previous month. Trading activity was mainly focused on bonds with remaining maturity between 7 and 10 years, which absorbed EUR 33.23 billion worth of transactions, or 74% of the overall traded volume. The most actively traded bond was the 10-year benchmark with EUR 23.7 billion worth of transactions followed by the 10-year bond, maturing on 20/7/2015, with EUR 6.5 billion. Of the 7,893 orders executed on HDAT, 53.88% were ''buy'' orders and 46.12% ''sell'' orders.

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