Italian BTPs are always popular with foreign investors, especially after the improvement in Italy’s sovereign rating, which benefits from the government’s stability and prudent fiscal policy. This is what emerges from the semi-annual Financial Stability Report published by the Bank of Italy, according to which the stability of the macro-financial framework benefits from the moderate recovery of credit, the stability of labor income, low unemployment, the prudent approach of budget policy, the limited private debt and the net foreign credit position. However, growth prospects remain limited.
BTPs in the hands of foreign investors are growing
In the first half of 2025, the growth in the share of Italian government bonds held by foreign investors, which began in 2023, continued, although the share is at lower levels than those recorded in the main euro area countries.
The percentage held by families remained substantially in line with the levels observed in 2024, as did that held by banks, while the share held by insurance companies and that held by the Bank of Italy and the Eurosystem as a whole decreased.
Regular placements on the primary market
On the primary government bond market, placement activity by the Treasury continued regularly, with increasing quantities among medium and long-term bonds. The two maxi retail issues, placed directly on the MOT market to retail investors (the BTP Italia in June and the BTP Valore in October) contributed to the stability of bond placements on the primary market.
Good liquidity on the secondary side
Liquidity conditions on the secondary market for Italian government securities remained relaxed, with trading volumes recording new highs in June and remaining high even in the summer months, despite the usual seasonal decline. The bid-ask spread of BTPs continued to remain at low levels and the quantities quoted by market makers progressively increased. The intraday volatility of government bond prices remained moderate, also reflecting smaller temporary deteriorations in the sector’s liquidity compared to those that occurred in 2024 and the first months of 2025 on the occasion of the publication of relevant macroeconomic data. Large orders continued to be absorbed without having a significant impact on prices.
Shrinking returns and spreads
Compared to April, the average yields at the issue of BOTs are decreasing, similarly to those of other securities (for which, however, a temporary increase was recorded in September). The average cost of securities in circulation rose to 2.84%. Since 2021, the average residual life has stabilized at around seven years.
The yield differential between Italian and German government bonds has continued to contract since last spring, due to the decline in the yields of Italian ten-year government bonds and the increase in those of the corresponding German bonds. Therefore, the Spread has returned to the levels observed before the sovereign debt crisis. Even on the credit default swap (CDS) market, the premium to insure against the risk of insolvency of the Italian sovereign issuer has fallen further, reaching its lowest values in the last 16 years.
