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Developments in the Greek government bond market - February 2003

07/03/2003 - Press Releases

Persistent uncertainty due to the geopolitical tensions continued to dominate the markets in February, strengthening investor preference for “safe-haven” assets, like government bonds. In addition, weak economic data released during the month and higher oil prices suggested that global growth would remain subdued in 2003 also, reinforcing expectations of lower interest rates that were confirmed by the European Central Bank’s 25bp cut on 6th March. Already, at the end of February, the March Euribor future contract indicated short-term rates at 2.43%, lower than the then minimum bid rate on the main refinancing operations of the Eurosystem (2.75%).

On the electronic secondary securities market (HDAT), Greek government bond prices closed higher in February. The 5-year and 7-year bonds recorded the strongest gains of 102 and 107 cents, to yield 3.24% and 3.75% down from 3.46% and 3.92% in January, respectively. The 10-year benchmark bond, maturing on 20.5.2013, gained 89 cents closing at 103.21, to yield 4.21%. The price of the 20-year bond, maturing on 22.10.2022, topped 114 during the month to retreat at 113.29 at the end of February, 10 cents higher than a month earlier. The 10-year bond liquidity, as measured by the ratio of turnover over the amount outstanding, was 95.26% in February 2003, 16% higher than in February 2002 (81.96%). The respective average yield spread over Bunds widened to 28 bps from 25 bps in January.

Given market expectations of an imminent rate cut, the yield curve steepened further while moving downward. The 3- to 20-year bond yield spread widened to 226 bps at the end of February from 204 bps at the end of January. The 3-year bond yield declined to 2.58% from 2.81% while the 20-year bond yield was broadly unchanged at 4.83% compared to 4.84% respectively.

HDAT turnover was EUR 47.04 billion compared to EUR 59.69 billion in January and EUR 36.51 billion in February 2002. Buying interest focused on bonds with maturity between 3 and 10 years. Of the total turnover of these bonds (EUR 24.54 billion), 51.5% were purchases and 48.5% sales. Inversely, at the longer end of the yield curve, 48.5% were purchases and 51.5% sales. Overall, of the 8.411 orders executed on HDAT, 49.56% were “buy” orders and 50.44% “sell” orders. Amongst individual bonds, the 10-year bond maturing on 18.5.2012 was the most actively traded, with EUR 6.24 billion worth of transactions, followed by the 20-year bond maturing on 22.10.2022, with EUR 4.86 billion.

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