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Greek Fixed Income Monitor - October 2015

In October, the Greek Government Bond Index recorded an annual high while also coming very close to reaching its September 2014 level. Specifically, the index was 3.78 percentage points higher in October than in the previous month. The major source of this improvement originated from the short and medium-term part of the yield curve (4–10 Year maturities). Nevertheless, the relatively high positive returns of the past 3 months have moderated slightly, since the news about the new economic agreement with the creditors is fully priced in by the market.

Improvement was also evident in the Corporate Bond Index, which increased by 2.56% in October relative to the previous month. On a Year-to-date (YtD) basis the index recorded a 2.35% gain. These developments were primarily due to the upward trend in corporate bonds since July 2015 which is related to the improvement in the expectations of the market with respect to the withdrawal of capital controls.

According to the results of the Comprehensive Assessment of the 4 systemic Greek banks conducted by the ECB, the total capital requirements stand at €14.4bn with the basic scenario amounting to €4.4bn. The capital requirements are expected to be covered by bond repurchases both with cash or equity redemption and by the accelerated book building procedure. The participation of senior bondholders in this bond exchange scheme is conditional on the participation of the HFSF in the capital requirements.

In mid-October, with the aim of covering the full amount of capital requirements from private investors, the majority of the 4 systemic banks announced bond repurchase offers that are expected to be completed by mid-November. The Financials Bond Index recorded substantial gains during October, reaching 75.63 points from 49.17 points at the end of the previous month. We should note though that this abrupt increase is mainly due to arbitrage trading related to the terms of the bond repurchase program.

As a result of the bond repurchase offers, we have opted to remove the Financials Bond Index as well as the Corporate Bond including Financials Index. With reference to the index base date, its highest price was recorded in June 2014 while its historical low was recorded during July 2015.

Ilias Lekkos

Group Chief Economist

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