Why Greek Bonds Are Still Considered Safer Than Italian BTPs

Eurozone bond markets continue to send a message that would once have seemed unthinkable: investors still view Greek sovereign debt as safer than Italian BTPs.

That has remained true despite the steady compression in the BTP-Bund spread over the past two years, as investors grew increasingly comfortable with Italy’s fiscal and political backdrop under Giorgia Meloni’s government.

Before the outbreak of the US-Iran conflict earlier this year, the spread had narrowed to roughly 60 basis points, its tightest level since the pre-euro crisis era.

Yet the decline in spreads never translated into a meaningful fall in Italy’s borrowing costs. As Bocconi professor and economist Carlo Alberto Carnevale Maffè told Money.it, BTP yields - the metric that ultimately matters for debt servicing - have remained structurally elevated.

Markets still prefer Greek debt over Italy

Markets continue to reflect that reality. Italian 10-year yields remain among the highest in the Eurozone’s core sovereign universe.

While French OATs yields recently overtook BTPs, Italy still borrows at materially higher levels than Spain, Portugal and, crucially, Greece.

Italian 10-year debt currently yields around 3.58%, compared with roughly 3.53% for Greek government bonds.

For Rome, that remains politically awkward.

Greece, after all, was at the centre of Europe’s sovereign debt crisis little more than a decade ago.

Stanislav Polezhaev: Eurozone bonds look more attractive than at the start of 2026

Stanislav Polezhaev, founder of Bondfish and a former investment banker, argues that markets are focusing less on headline debt ratios and more on debt structure, financing needs and medium-term macro stability.

“Overall, Eurozone yields are more attractive than they were at the beginning of the year. 10Y Bunds yield now around 3%. We think that EUR bonds are more attractive than USD bonds, even though USD yields are higher. However, there is a greater chance that the Fed will increase rates more than the ECB. That’s why USD bonds appear more expensive”, he told Money.it.

At the same time, Polezhaev remains cautious on long-duration debt across developed markets. “On duration positioning, we wouldn’t recommend investing entirely in long bonds”, because “there are many risks regarding the geopolitical situation in the Middle East and between Russia and Ukraine”.

He warns that “another spike in conflicts easily pushes yields higher and this is painfully felt when invested in long bonds”.

Greek debt strategy: fixed rates, long maturities and lower refinancing risk

Within the Eurozone, however, he sees Greek and Spanish sovereign debt as comparatively well-positioned.

“In terms of countries, we think that Greek and Spanish bonds are better. Both countries have improved their finances, have reasonably stable politics, and don’t need to borrow huge amounts. Although Greece’s debt-to-GDP ratio is very high, 100% of its debt is fixed-rate after hedging. The weighted average maturity is over 18 years, and the cash interest cost is only about 1.3%”.

Data from Greece’s Public Debt Management Agency support that assessment.

Athens has spent years extending maturities and using interest-rate swaps to shield public finances from ECB tightening cycles.

Bondfish is considerably less constructive on both French and Italian debt:

“’I’m a bit sceptical about French bonds due to the nervousness associated with the 2027 French presidential election”, and “the Italian bond and Italy-Bund spread are also not attractive at the moment”.

In his view, the compression in the BTP-Bund spread has largely run its course: “The spread tightened to 70 basis points recently, so there’s not much room left to improve”.

Meanwhile, Italy faces a more difficult fiscal backdrop heading into 2027, with higher defence spending requirements and the gradual expiry of EU recovery fund support likely to put renewed pressure on public finances: “Italy has a challenging 2027 budget due to the need for increased defense spending and the end of an EU funding program. This could worry markets later in the year”.

Greek growth vs Italy’s structural stagnation

Markets, he argues, are also rewarding stronger growth dynamics elsewhere in southern Europe.

Greek GDP is expanding at roughly 2 per cent annually, while consensus forecasts for Italy point to growth closer to 0.5-0.8 per cent over the next two years.

But Polezhaev believes growth alone does not explain the divergence in spreads. “Overall, GDP development is only one of the factors influencing govt bond behaviour. We think that fiscal policy, political developments and debt policy have even more importance for the bond yield spreads”.

Greece is benefiting from an investment-led recovery supported by EU funds, tourism and labour market improvements, while Italy continues to struggle with weak productivity, ageing demographics and structurally low potential growth:

“Greece is in an investment-led economy that is catching up from a deeply depressed base. Its investment-to-GDP ratio is rising sharply, from 11% toward 16%. It is supported by EU funds, tourism and labour-market recovery. Italy is constrained by weak productivity, ageing demographics and structurally low potential growth. More reforms are needed to reverse this trend”.

For bond investors, the distinction has become increasingly difficult to ignore.