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Developments in the Greek government bond market - December 2007

11/01/2008 - Press Releases

On international markets, government bond prices showed a correction in December after the strong gains recorded during the previous two months. Amongst the major factors leading to this performance was a partial easing of tensions in financial markets combined with the reduced appeal of safe-haven assets, such as government bonds, following the decision by major central banks to inject liquidity into the system in order to restore investor confidence. In addition, data releases showing accelerating inflation in both the US and the Euro-zone reduced investor expectations about the magnitude of monetary policy easing in the US and reinforced the case for higher rather than lower interest rates in the Euro-zone, with a negative impact on government bonds. On December 6, the European Central Bank left interest rates unchanged while on December 11 the Federal Reserve cut official interest rates by 25 basis points (bps).

On the Greek electronic secondary securities market (HDAT), government bond yields rose in December, particularly on the part of the curve between 5 and 10-year maturity, in line with the performance seen in the rest of the Euro-zone markets. More in details, the 10-year benchmark bond yield recorded the biggest increase, by 22 bps, to 4.66% on December 31 from 4.44% on November 30, the 3-year bond yield rose by 17 bps to 4.22% from 4.05% and the 30-year bond yield rose by 9 bps to 5.05% from 4.96%. As a result, the yield curve flattened as the yield difference between the 30 and the 3-year bond yields narrowed to 84 bps at the end of December from 91 bps at the end of November. Finally, the average monthly spread between the Greek and the German 10-year benchmark bond yields narrowed in December to 29 bps from 32 bps a month earlier.

Benchmark bond prices fell between 18 and 165 bps, with the 15-year bond price showing the biggest decline to 97.35 on December 31 from 99.00 on November 30. The 3-year bond price fell to 98.84 at the end of December from 99.02 a month earlier and the 10-year bond price to 97.22 from 98.86.

Trading volume on HDAT was relatively low in December, as trading activity declined considerably during the Christmas period, and amounted to EUR 21.36 billion worth of transactions compared to EUR 40.35 billion in November and EUR 45.01 in December 2006. The daily average turnover was EUR 1.12 billion compared to EUR 1.83 billion during the previous month. Investors’ interest was mainly focused on bonds with remaining maturity between 7 and 10 years, which absorbed EUR 9.5 billion worth of transactions, or 44% of the overall traded volume, while the most actively traded bond was the 10-year benchmark with EUR 6.6 billion worth of transactions followed by the 5-year bond, maturing on 20/8/2012, with EUR 2.6 billion. Of the 3,904 orders executed on HDAT, 47.6% were “buy” orders and 52.4% “sell” orders.

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