Developments in the Greek government bond market - January 2007
05/02/2007 - Press Releases
On international markets, government bonds recorded
significant losses for the second month in a row in January, and yields rose on
all maturities, following the release of positive economic data in both the US
and the Euro-zone. In the US, signs of stabilization in the housing market,
solid labour market data and overall positive economic growth data published
during the month raised investors’ worries about inflation risk. Risk that was
repeatedly mentioned by Federal Reserve (FED) officials in several statements
released during January. In the Euro-zone, while economic growth remained
positive, the rate of monetary and credit expansion continued at high levels
reinforcing investors’ expectation of a continuation of interest rates increases
by the European Central Bank during 2007. In addition, on January 11 the Bank of
England increased interest rates by 25 basis points to 5.25%, while both the FED
and the ECB kept monetary policy unchanged at their January meetings.
On the Greek electronic secondary securities market (HDAT),
government bonds recorded losses on all maturities and particularly at the long
end of the yield curve, in line with the performance seen in the rest of the
Euro-zone markets. Therefore, the yield curve steepened slightly while shifting
upwards. More specifically, 3-year bond yields rose by 9 bps to 4.06% at the end
of January from 3.97% at the end of December, while 30-year bond yields rose by
13 bps to 4.58% from 4.45%. Thus, the steepness of yield curve (measured as the
yield difference between the 30 and the 3-year bond yields) increased to 52 bps
at the end of January from 48 bps a month earlier. On January 12, a new 10-year
benchmark bond was successfully introduced in the market via syndication, with
maturity date 20/7/2017 and coupon 4.30%. On the first day of trading the yield
of the new 10-year benchmark was 4.32% and it rose to 4.36% by the end of the
month. Finally, the average monthly spread between the Greek and the German
10-year benchmark bond yields remained unchanged at 26 bps for the third month
in a row.
Benchmark bond prices fell between 15 and 211 bps in January.
The 3-year bond price fell to 98.49 at the end of January from 98.64 at the end
of December. The 30-year bond, which recorded the highest loss, fell to 98.68
from 100.79, while the price of the new 10-year benchmark fell to 99.45 on
January 31 from 99.78 on its first day of trading on HDAT on January 12.
Trading volume on HDAT in January amounted to EUR 64.31
billion worth of transactions compared to EUR 45.01 billion in December and to
EUR 54.92 billion in January 2006. The daily average turnover was EUR 2.92
billion compared to EUR 2.37 billion during the previous month. Trading activity
was mainly focused on bonds with remaining maturity between 7 and 15 years,
which absorbed EUR 42.86 billion worth of transactions, or 67% of the overall
traded volume. The most actively traded bond was the previous 10-year benchmark,
maturing on 20/7/2016, with EUR 18.1 billion worth of transactions followed by
the new 10-year benchmark with EUR 14.6 billion. Of the 11,428 orders executed
on HDAT, 53.35% were ''buy'' orders and 46.65% ''sell'' orders.