Government bonds recorded significant gains during September after two and half months of decline as sentiment turned positive on international bond markets.
This reflected investors? response to economic developments in the US where the data released during the month showed that though economic recovery is underway, unemployment remains at a high level, as a result of which consumer confidence continues to be low. In addition, in the Euro-zone the economic situation remained relatively weak, which led the IMF, in its last report, to warn the ECB about the possible need of further monetary easing. As a result, investors became more confident that interest rates are going to stay at historic lows, both in the US and in the Euro-zone, in the near future.
On the Greek electronic secondary securities market (HDAT), government bond prices were on a rising trend for the whole of September and by the end of the month they were up between 55-144 price basis points. The 7-year bond maturing on 19.5.2010 recorded the strongest gains closing at 113.27 (with a yield of 3.70%) on September 30 from 111.83 (3.96%) at the end of August. The 10-year benchmark bond (maturing on 20.5.2013) closed at 103.27 (4.17%) at the end of September compared to 102.15 (4.32%) at the end of August. The monthly average 10-year yield spread over Bunds narrowed to 12 basis points (bps) in September, recording a new historic low, from 14 bps in August.
With developments in the global economy reinforcing the view that interest rates will remain unchanged at historically low levels for a relatively long period of time, the yield curve became considerably steeper in September while shifting downwards as yields at the short-end of the curve (3-year area) declined 34 bps compared to 4 bps at the long-end (20-year area). The 3- to 20-year bond yield spread widened to 219 bps at the end of September from 190 bps at the end of August.
Market turnover on HDAT rose to EUR 65.20 billion in September from EUR 54.24 billion in August and compared to EUR 66.40 billion in September 2002. Bonds with remaining maturity until 10 years were the most traded, attracting 84% of the total turnover. The 10-year benchmark bond recorded the highest traded volume amongst individual bonds on HDAT with EUR 15.57 billion. Its liquidity, as measured by the ratio of the monthly traded volume over the amount outstanding, rose to 229% from 205% in August. Of the 11,060 orders executed in HDAT during September, 51.24% were 'sell' orders and 48.76% 'buy' orders.