Italy’s bond spread sinks to 2-year low as economy outshines Germany

The bond spread between Italy and Germany has reached its lowest level in over two years, reflecting growing optimism about Italy's economy and expectations of interest rate cuts. This spread, which measures the difference in borrowing costs between the two countries, narrowed to 1.16 percentage points on Thursday, down from over 2 percentage points in October. Italian Finance Minister Giancarlo Giorgetti expressed hope that this trend would continue, aiming for a spread of 110 basis points. Despite initial concerns about the rightwing bloc's election in 2022, Prime Minister Giorgia Meloni's government has pursued fiscal discipline and built a strong relationship with the EU. While Italy's economy has performed well, Germany has faced challenges, contributing to the tightening spread. Investors are attracted to high yielding assets in anticipation of European Central Bank rate cuts, further supporting Italian bonds. Retail investors have shown interest in Italian debt, particularly BTP Valore bonds, which offer bonuses for long-term holding. Meloni underscores the importance of domestic ownership of debt, aiming to strengthen Italy's control over its financial destiny.