December 18, 2018 / 4:16 PM / 3 months ago

UPDATE 1-European bond trading volumes lowest in at least half a decade in Q3 - AFME

(Adds details, background)

LONDON, Dec 18 (Reuters) - European government bond trading volumes fell to the lowest level since records began in 2013, trade association AFME said on Tuesday, quoting data from bond trading platform MarketAxess.

Average daily trading volumes of European government bonds fell by 20.3 percent quarter-on-quarter, and by 7.2 percent year-on-year, the Association for Financial Markets in Europe said.

The sharp decline was led by a 46 percent year-on-year drop in Swedish government bond trading and an 18 percent year-on- year fall in German government bond trading.

Liquidity across the continent varied, with Italy experiencing the lowest daily turnover on electronic platforms since Q3 2015 at 3.5 billion euros.

“The abnormal risk perception on Italian credit quality may have deterred market participants from trading in larger volumes or at a higher frequency,” said AFME in the report.

AFME pointed to a strong negative correlation between Italian government bond trading and Italian sovereign credit default swaps. Italy’s five-year credit default swap, the cost of insuring its debt, rose by 39 basis points on a quarterly basis.

“This may illustrate market participants’ preference to trade under more stable market conditions or changes in dealer capacity,” the report said.

Cyprus stood out among issuers, having increased its outstanding debt by 38.7 percent in the quarter to 13.5 billion euros, following a credit ratings upgrade. Cyprus’ credit rating was lifted to BBB- from BB+ in Q3 2018.

Elsewhere, overall new issuance by European governments decreased by 2.1 percent, down to 574.2 billion euros in the third quarter from 586.4 billion euros in the second quarter.

In addition, AFME highlighted that the weighted average maturity decreased for all but six EU countries after only 11 countries issued bonds with maturities greater than two years in the third quarter. (Reporting by Virginia Furness Editing by Gareth Jones)

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