March 8, 2020 / 1:53 PM / 25 days ago

Italian markets to open as usual on Monday, traders brace for volatility

MILAN (Reuters) - Italy’s financial markets will open as usual on Monday, but traders are expecting a wild start to the week after the government ordered a lockdown of large parts of the north of the country, including the financial capital Milan, to fight the coronavirus.

A woman goes past the Italian Stock Exchange in Milan, as the country is hit by the coronavirus outbreak. Italy, February 25, 2020. REUTERS/Flavio Lo Scalzo

Despite restrictions unprecedented in Italy’s postwar history, the Milan stock exchange, which is part of the London Stock Exchange group (LSE.L), will open as usual, a spokesman for the group said.

An official from Italy’s Treasury department told Reuters there would be no change to the schedule for government bond auctions, under which sales of short- and medium-term notes are due to take place next week.

However, with the most economically productive part of the country in virtual quarantine and no signs of the outbreak easing, traders were bracing for volatility in the markets.

“The situation is very complicated and the Lombardy lockdown could trigger a violent reaction in the market,” a trader at one of Italy’s biggest banks said. He also said that banks were aware that it was important to maintain liquidity.

Under the new measures effective from Sunday, people are not allowed to enter or leave the Lombardy region, which surrounds Milan. Authorities are also urging people to reduce movements inside the areas under lockdown, with many companies telling staff to work from home.

The restrictions also apply to 14 provinces in four other regions.

Italy’s death toll from the virus jumped 57% on Sunday to 366, the worst in a European country so far, with 7,375 cases overall.

Since Feb. 20, when Italy imposed the first measures to contain the virus outbreak, Milan’s all-share stock index has fallen 17.4%.

Ten-year bond yields in Italy steadied on Friday and were last hovering around 1.08% IT10YT=RR, drawing some support from expectations of action by the European Central Bank.

“Half of the trading room was already operating remotely this week,” a source at another of Italy’s biggest banks said.

One bond trader who works at another major bank in Milan said that banks had been preparing for days to avoid potential disruptions to Italian government bond auctions.

Italy has the second-largest public debt in the euro zone in proportion to its economic output and annual gross refinancing needs of around 400 billion euros ($453.60 billion).

The Treasury will offer 6.5 billion euros in 12-month bills on Wednesday, with medium- and long-term bonds on sale on Thursday.

Should the government issue a public transport ban and force offices to close - which is not the case so far - liquidity on the bond market could be severely affected, with a rise in volatility, another bond trader said.

Additional reporting by Elisa Anzolin, Giulio Piovaccari, writing by Francesca Landini; Editing by Jane Merriman

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