Bond performance dims in October, turnover surges

The performance of Greek government bonds trading on the electronic secondary securities market (HDAT) in October was in line with subdued sentiment in the rest of the eurozone, the Bank of Greece said yesterday. The central bank noted in a statement that data on major economies, released during the month, provided further evidence that the pace of global growth is accelerating. The strength of the economic data had a greater impact on investors’ confidence than the reassuring comments by the US Federal Reserve at its October meeting, which suggested that interest rates will remain low for a considerable period of time.                                The upgrade in Greek long-term debt by the rating agency Fitch (from A to A+) had only a muted market impact, with the yield spread between the Greek and the German 10-year benchmark bond narrowing temporarily to 11 basis points (bps), whereas the monthly average yield spread for October widened to 13 bps from 12 bps in September. Overall Greek bond prices declined in the range of 92-257 basis points, erasing all the gains made during September. The 10-year benchmark bond (maturing on May 20, 2013) closed at 101.05 (with a yield of 4.45 percent) on October 31 compared to 103.27 (4.17 percent) at the end of September. The 20-year bond (maturing on October 22, 2022) recorded the highest price decline, from 112.61 (4.87 percent) at the end of October to 110.04 (5.06 percent) a month earlier, and the three-year bond (maturing on June 21, 2006) the smallest, closing at 99.25 (3.04 percent) at the end of October compared to 100.17 (2.68 percent) on September 30. The yield curve shifted upward and flattened considerably during October as yields at the short end of the curve rose 36-39 bps (three- and five-year yields), compared to 19 bps at the long end (20-year yield). The three- to 20-year bond yield spread narrowed to 202 bps from 219 bps at the end of September. Record turnover Market turnover on HDAT surged in October to 79.72 billion euros, the highest level recorded so far, up from 65.20 billion euros in September and compared to 69.30 billion in October 2002. More than half of this volume (52 percent) was concentrated in bonds, with remaining maturity between seven and 10 years. The 10-year benchmark bond recorded the highest traded volume among individual bonds on HDAT with 23.2 billion euros. Its liquidity, as measured by the ratio of the monthly traded volume over the amount outstanding, rose to 341 percent in October from 229 percent in September. Of the 13,858 orders executed in HDAT during October, 50.73 percent were «buy» orders and 49.27 percent «sell» orders.