A rally in Italian government bonds has narrowed the closely watched gap between the country’s borrowing costs and Germany’s to the lowest level in more than two years, as investors become increasingly optimistic about the prospects for Italy’s economy and position for interest rate cuts.
The so-called spread, or gap, between 10-year borrowing costs in Italy and Germany sank to 1.16 percentage points on Thursday, its lowest level since November 2021, before rising back to 1.28 percentage points. That marks a major turnaround from a level of more than 2 percentage points as recently as October, reflecting growing market confidence in Prime Minister Giorgia Meloni’s handling of the economy, at a time when growth in Germany has stalled.
“Three or four months ago, few could imagine that the spread today, in mid-March, could be 123 basis points,” Italian finance minister Giancarlo Giorgetti told the Financial Times ahead of Thursday’s moves.