The Bank of Italy published a research paper analysing the demand and supply dynamics of Italian government bonds as euro-area central banks unwind expansionary monetary policy. Using granular primary and secondary market data, the study assesses “Market Absorption Capacity” (MAC), defined as the market’s ability to absorb supply and demand shocks with limited price effects. The paper finds that when Eurosystem purchases were reduced or suspended, private investment in sovereign securities remained stable or increased, and the associated effects on issuance costs were modest and not statistically significant. It also reports that during periods of market stress, demand from end investors tends to weaken and auction issuance costs rise accordingly.
Bank of Italy 2025-11-12
Bank of Italy research finds Italian government bond markets absorbed reduced Eurosystem purchases with limited price impact
The Bank of Italy released a paper examining Italian government bonds amid the unwinding of euro-area central banks' expansionary monetary policy. The study finds private investment in sovereign securities remained stable or increased when Eurosystem purchases were reduced, with modest effects on issuance costs. However, during market stress, demand from end investors weakens, leading to higher auction issuance costs.