The Bank of Italy today publishes ‚Investor behavior under market stress: evidence from the italian sovereign bond market‘

The Bank of Italy has released the new issue of the series “Markets, infrastructures, payment systems“, titled “Investor behavior under market stress: evidence from the Italian sovereign bond market“.
This report examines the reactions of different types of investors in Italian government bonds to changes in past yields and sheds light on the involvement of non-banks alongside banks. The analysis spans from 2014 to 2020, encompassing periods of significant market stress, including the 2018 Italian market turmoil and the onset of the COVID-19 crisis in March 2020.
The findings reveal that investors respond differently to past yield changes, based on the sector to which they belong.
Asset managers and hedge funds exhibit pro-cyclical behaviour, buying securities when prices rise and vice versa. In contrast, banks do not and thus play a more stabilising role. Additionally, non-bank investors such as insurance companies, pension funds and non-financial entities display a muted response to past yield changes.