International government bond markets advanced further in July benefiting, mainly, from the continued turbulence in equity markets that has dented business sentiment and consumer confidence, intensifying the uncertainty over the strength of global economic recovery on the back of weaker than expected economic data. The European Central Bank and the Federal Reserve confirmed once more investor belief that interest rates would remain unchanged for the time being.

In the electronic secondary securities market (HDAT), turnover reached EUR 46.24 billion after EUR 41.36 billion in June and compared to EUR 19.21 billion in July 2001. Investor interest focused on bonds with maturity up to 10 years, which attracted 76% of total market turnover. The most actively traded parts of the yield curve were between 7 and 10 years, with transactions amounting to EUR 12.8 billion, and up to 3 years, with transactions amounting to EUR 10.3 billion. Among individual bonds, the most actively traded was the 10-year benchmark maturing on 18.5.12 with EUR 6.45 billion worth of transactions, followed by the 10-year bond maturing on 18.5.11 with EUR 3.88 billion. From the 8,635 orders executed on HDAT, 50.2% were purchases and 49.8% sales.

Bond prices rose along the curve in the range of 70-88 basis points (bps) compared to the previous month. The 10-year benchmark bond price stood at 100.6, to yield 5.17%, 80 bps higher than last June (99.8, yielding 5.27%), reaching on July 25 the highest level of 101.4 (5.06%) since issued (17.1.02).

Declining yields pushed downward the yield curve, which became considerably steeper as the 3- to 20-year yield spread widened by 20 bps to reach 145 bps at the end of July, compared to 125 bps at the end of June. The 3-year yield fell to 4.09% on July 31 from 4.36% on June 28 and the 20-year yield to 5.54% from 5.61% respectively.

The monthly average yield spread of the 10-year benchmark bond over Bunds widened slightly to 34 bps from 33 bps in June.