June 19, 2018 / 6:10 PM / 2 months ago

UPDATE 1-Italy's recent bond sell off not just result of politics - Italy debt official

* Italy bond selloff not just about politics - Italy debt official

* Contagion from Italy limited - Portugal debt chief

* ECB tapering no problem - issuers (Updates throughout)

By Abhinav Ramnarayan and Dhara Ranasinghe

LONDON, June 19 (Reuters) - Recent sharp volatility in short-dated Italian government bonds was partly due to technical factors in addition to political concerns, a senior official at the Italian government debt agency said on Tuesday.

Italian bond markets in May experienced some of their biggest swings in several years as an anti-establishment coalition took shape in Rome.

But some technical factors such as the reduced capacity of primary dealers to trade government bonds also contributed to market volatility, Davide Iacovoni, director general, Public Debt Directorate at Italy’s Department of Treasury said at a conference in London.

“We have the feeling that the magnitude of the swings is not only attributable to political events but to technical changes in the market as well,” he said a Euromoney conference.

He said that regulations in the financial industry have reduced the capacity of primary dealers — banks appointed by governments to sell and trade government bonds — to act as a buffer for volatility as they have done in the past.

He also said that a lack of liquidity in the BTP bond futures market impacted trading in cash bonds.

Also speaking at the conference, the Portuguese debt management agency’s chairwoman and chief executive Cristina Casalinho said the contagion from events such as the recent Italy selloff seems to have subsided compared with the height of the euro zone debt crisis.

“The architecture of the euro zone project is more robust and flexible than it was (during the 2010-2012 debt crisis),” she said.

Pablo de Ramón-Laca Clausen, head of funding and debt management at the Spanish Treasury said the relative lack of turbulence in Spanish government bond markets after recent political uncertainty shows the country’s resilience and is partly due to structural reforms implemented.

NO TAPER TANTRUM

The end of the European Central Bank’s unprecedented stimulus programme is likely to be a smooth process for euro zone bond markets, debt management officials added.

They said that ECB tapering had been well anticipated by markets and that reinvestments from maturing bonds would continue to support bonds well after monthly asset purchases end.

“ECB tapering is a “benign” scenario for Spanish bond markets,” Spain’s Pablo de Ramón-Laca Clausen said.

The ECB last week announced that its 2.6 trillion euro bond purchase scheme will end by the close of the year. The bank also signaled that any interest rate hike remains some way off.

Tammo Diemer, a member of the executive board, German Finance Agency, stressed that reinvestments from maturing bonds would continue to support bonds.

Portugal’s Casalinho meanwhile added that effective ECB communication also helped from an issuer’s perspective.

“What’s really relevant is good communication and so far the ECB has a good track record on that front,” she told Reuters on the sidelines of the conference. (Reporting by Abhinav Ramnarayan and Dhara Ranasinghe; Editing by Matthew Mpoke Bigg)

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