Annual review of the Greek gonernment bond market (2001)
09/01/2002 - Press Releases
In 2001, the electronic secondary Greek government bond market (HDAT)
completed three and a half years of a successful operation, yielding sizeable profits to
both market participants and the issuer (the Hellenic Republic). The main features were
the spectacular increase of liquidity (daily average turnover EUR 2,260 million or 770
billion drachmas in November-December 2001) and the reduction of yield spreads between the
Greek and euro-zone Treasury bonds that declined to the lowest record level of 33 basis
points (bps) on December 27.
The admission of Greece into the euro-zone played a decisive role in
the positive developments experienced by the Greek market, which also paved the way for
the upgrading (to A from A-) of the government debt in domestic currency (euro, since 1
January 2001) by the international rating agencies Standard & Poor’s and Fitch IBCA
last March and June respectively. These developments reinforced the attractiveness of the
Greek government bonds, leading to price increases that resulted in significant capital
gains for their holders. Indeed, during 2001, except in December, the trend of bond prices
followed an upward course along the curve, between 50-60 price basis points in the short
end (2-4y maturity) and 316-394 bps in the longer end (over 15 years). The price of the
10y benchmark bond which was 99.678 (yielding 5.35%) on the date of issue (30.1.2001)
closed at 100.44 (5.28%) on 28.12.2001 and that of the 20y bond from 105.42 (6.01%) on
29.12.2000 ended at 109.36 (5.65%). The downward correction observed during December in
the international bond markets and, consequently, in the Greek one, was related to both
profit taking before fiscal-year end and reactions to the first signs of stabilization in
global macroeconomic conditions and, particularly, in the US.
Meanwhile, falling inflation rates in Greece as well as in the
euro-zone, successive interest-rate cuts by the ECB and by the Fed during the course of
2001, particularly after the terrorist attacks against the USA on September 11, resulted
in gradually declining yields of the Greek government securities, which followed the
developments in the international bond markets. Thus, the issuer benefited, on the one
hand, from financing its borrowing needs in domestic currency, lowering commensurately its
borrowing in foreign currency, and, on the other, by reducing considerably the servicing
cost. For example, the yield of the 12m Treasury bill, which is used as the basis in
resetting floating-rate bond coupons, stood at 4.24% at the first auction of 2001 and it
fell to 3.02% at the last auction of the year. Furthermore, the 10y bond yielded 6% when
launched on 18.4.2000, while the yield-at-issue of the 10y benchmark was 5.35%.
Turnover in HDAT increased almost five-fold compared to the previous
year. The strongest activity was observed during the last three months, especially in
November (EUR 57bn). Total turnover reached EUR 314 billion in 2001 from EUR 64 billion in
2000. The monthly average turnover rose to EUR 26.2 billion from EUR 5.3 billion
respectively. The total turnover registered in the Securities Settlement System of the
Bank of Greece reached EUR 2,835 billion (daily average EUR 11,339 million or GRD 3,864
billion) in 2001 compared to EUR 1,035 billion in 2000.
The spectacular market liquidity growth was also reflected in the lower
bid/ask spreads, which are scaled according to maturity. During 2001 this spread ranged
between 2 and 7 bps for bonds up to 7 years-to-maturity, from 5 to 10 bps for bonds up to
11 years and between 7 and 15 bps for bonds with longer maturities. The monthly average
bid/ask spread in 2000 was 19 bps across the curve.
Moreover, the yield spread between Greek and European government bonds
declined considerably, reflecting the increased confidence of both domestic and foreign
investors in the Greek capital market. The average 10-year spread over Bunds tightened to
38 bps in December 2001 compared to 62 bps a year before, while on the 27th of the month
it touched the lowest record ever of 33 bps.
These positive market developments were also helped by the decision to
grant foreign financial institutions, which participate in HDAT as remote members, the
Primary Dealer status as of January 2001. The good prospects of the Greek government bond
market are also reflected in the significant number of new applicants, of which 12 foreign
(10 dealing directly from their offices abroad) and 5 Greek financial institutions were
selected as Primary Dealers in 2002.
Given the low deposit interest rates while the Greek government
securities will continue redeeming high coupons until maturity, the general public is
expected to invest more in bonds in order to secure better returns on its savings.