Italy’s Meloni Scores Political Win as Bonds Stabilize, Yet Reform Urged

Despite global market turbulence triggered by geopolitical tensions, including the U.S.-Iran conflict and inflation concerns, Italian government borrowing costs have remained notably below the levels seen before Giorgia Meloni assumed office.

Lauren Hyslop, an investment manager at Mattioli Woods, told CNBC that Meloni has surprised markets by governing as a fiscal pragmatist rather than adhering to populist strategies. This approach has led to tighter bond spreads, upgraded ratings, and reduced borrowing costs, effectively restoring investor credibility for Italy.

Ken Egan, senior director for sovereigns at KBRA, agreed that the country no longer carries the default political instability premium of the past. He pointed to the continuity of a long-serving government, a predictable fiscal trajectory, and ongoing reforms as key drivers of this shift.

Egan noted that Italian medium- and long-term bonds have outperformed peers among developed economies. Although the 10-year yield has risen by 62 basis points this year, the 10-year total return remains the best in Europe when accounting for both price movements and interest income.

However, Jason Borbora-Sheen, co-portfolio manager at Ninety One, cautioned that the fiscal turnaround contains a self-fulfilling element. He explained that political stability tends to reduce debt burdens, which in turn boosts public satisfaction with the incumbent government.

Despite acknowledging the positive fundamental story, Borbora-Sheen stated that his team does not view Italian government debt as a compelling investment, noting that the market has already priced in the improved outlook.