March 18, 2020 / 11:42 AM / in 16 days

UPDATE 1-Bank of Italy buying domestic bonds as ECB steps in to stabilise markets - source

(Adds comments, details)

ROME, March 18 (Reuters) - The Bank of Italy is buying Italian paper as the European Central Bank steps in to counter a rout in euro zone government bond markets, a source at the Italian central bank said on Wednesday.

“The European System of Central Banks, through the Bank of Italy, is stepping in to ensure orderly market conditions,” the source said.

Italian bond yields on Wednesday looked set for their biggest daily jump since the 2011 sovereign debt crisis due to a coronavirus outbreak which is expected to plunge the euro zone’s third biggest economy into a deep recession - raising concerns over its 2.4 trillion euro debt.

Poor liquidity is exacerbating the market sell-off.

The ECB last week said it would buy an extra 120 billion euros worth of bonds by the end of the year in response to the pandemic, on top of the 20 billion euros it buys every month to support inflation in the euro zone.

Bond market traders say the ECB has conducted massive purchases of Italian paper and bonds of other countries this week.

Such “interventions are flexible both in timing and in terms of concerned markets and will continue for as long as necessary,” the Bank of Italy source said.

The source said the ECB’s actions should eliminate any doubts markets may still have on “the nature of the decisions taken by the ECB’s governing council”.

Before quickly backpedalling, ECB President Christine Lagarde alarmed investors last week, prompting them to dump bonds of weaker Southern European members, by saying it was not the ECB’s job to close the gap between the borrowing costs of various members. (Reporting by Stefano Bernabei, writing by Gianluca Semeraro and Valentina Za, Editing by Angus MacSwan)

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