The European Central Bank's coronavirus-related asset purchase program was critical to the continued functioning of Europe's bond markets, according to a report by the International Capital Markets Association.
The association examined the investment grade secondary bond market in Europe for the last weeks of February through April, covering the height of market volatility associated with the COVID-19 pandemic.
The coronavirus crisis caused market volatility and dislocation that surpassed those seen in 2007 and 2008, associated with the global financial crisis, ICMA said.
The ability to buy and sell bonds in the €5.65 trillion ($6.11 trillion) market over the period became "severely impaired" in the middle of March. ICMA said that at the lowest point of the liquidity crisis in the bond market, by March 18, "some market participants report that the market had become dysfunctional."
However, the ECB also announced March 18 its €750 billion Pandemic Emergency Purchase Program, which ensured the continued functioning of European bond markets, restored confidence in secondary markets and led to a surge in issuance in the investment grade primary market, ICMA's report said.
The report added that, at the peak of the crisis and for the most part, electronic trading of European corporate bonds "broke down as participants resorted to voice trading. This was not so much due to technological challenges, but rather because the market became too volatile and too illiquid for dealers to risk providing pricing across electronic platforms," the report said.