We study the market quality of Italian sovereign bonds during the COVID-19 pandemic, revealing its direct impact (represented by COVID-19 hospitalizations) and its indirect impact (channeled by the ECB monetary policy) on heightened volatility and deteriorated liquidity conditions during the first COVID-19 wave. We also uncover an additional channel by which the pandemic was costly for taxpayers: the surge of the auction premium. Our analysis shows that subsequent monetary policy measures effectively reduced volatility and the size of the premium during the second wave of the pandemic.
The Impact of COVID-19 on Italian Sovereign Bond Market Quality
Flora, Maria;Reno, Roberto
2025-01-01
Abstract
We study the market quality of Italian sovereign bonds during the COVID-19 pandemic, revealing its direct impact (represented by COVID-19 hospitalizations) and its indirect impact (channeled by the ECB monetary policy) on heightened volatility and deteriorated liquidity conditions during the first COVID-19 wave. We also uncover an additional channel by which the pandemic was costly for taxpayers: the surge of the auction premium. Our analysis shows that subsequent monetary policy measures effectively reduced volatility and the size of the premium during the second wave of the pandemic.
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