Demand Shocks in the Italian Government Bond Markets

This research investigates the impact of demand shocks in the Italian government bond market, with a focus on the interaction between primary auctions and secondary market dynamics. Exploiting the institutional features of Treasury auctions — where supply is pre-announced and thus known to market participants — the study constructs a high-frequency measure of unexpected demand shocks by observing changes in 10-year BTP prices within a narrow window around the auction result announcements. This approach allows the identification of demand-driven shifts independent of broader macroeconomic factors, offering a quasi-natural experiment. The analysis shows that such shocks have significant effects on the yield curve and propagate to wider financial markets, influencing corporate and private debt segments through portfolio rebalancing and credit channels, similarly to the effects of quantitative easing. The results contribute to the literature on sovereign debt and macroeconomic policy by highlighting the central role of government bond market microstructure and demand dynamics in fiscal sustainability and policy transmission within the euro area.