Global Daily – Italian banks the buyers of last resort

by: Nick Kounis

Euro Rates: Italian banks build up domestic bond holdings – Italian commercial banks built up their holdings of Italian government bonds in June, continuing a trend that started in May. Their total holdings in June were up by EUR 17bn in June to 381bn, after an 11bn rise in April. These securities are likely to have been short-term as we estimate that the average duration of bank holdings is typically around 2.5 years. The step up in holdings coincided with the sell-off in the Italian government bond market in May and June, when 2y yields rose from -0.3% at the start of the period to 0.7% at the end, having reached a high of 2.8% at the end of May. It could be that Italian banks saw value in the securities following the sell-off, or they could have been acting as a force to stabilise the market. Indeed, the purchases of the Italian banks actually dwarfed those of the Eurosystem over that period under the PSPP. The central bank of Italy bought EUR 4bn in June and EUR3.6bn in May, though the average maturity of its cumulative purchases is higher at just under 8 years. The behaviour of the Italian banks during the sell-off suggests that they are willing to step in when other investors are selling, just as they did during the eurozone crisis. The stock of Italian bank holdings of Italian sovereign debt is still below the levels seen during the crisis despite the recent rise. (Nick Kounis)