High yields and promising economic reports have heightened demand for Italian government bonds, according to fresh data.

A rise in international investor confidence, in what has been viewed as one of the riskiest eurozone bond markets, would bolster the country’s efforts to manage the second-largest debt pile in the bloc.

Bank of Italy data shows foreign holdings of Italian government paper rose in February following 10 straight monthly falls, Reuters reports.

According to analysts, stronger-than-forecast economic growth, falling public debt and the likelihood of political stability under Giorgia Meloni's government are beginning to attract investors back to Italian bonds.

International investors were now looking at Italy with “total calm and confidence,” according to former Italian economy minister and vice chairman of Morgan Stanley, Domenico Siniscalco. “This is a magic moment for Italian bonds,” he told Reuters news agency.

At the end of last year, the share of Italian government debt held by foreign investors fell to under 20%, from around 50% before the financial crisis in 2008, according to central bank data.

Unicredit’s head of strategy research, Luca Cazzulani said the level of yields offered by Italian paper makes it difficult for foreign banks and funds to disregard. “Keeping an underweight position on Italy will risk hurting (investors') performance,” he said.

In addition, Italy’s economic growth has surpassed forecasts since the end of the pandemic, with GDP increasing 3.7% in 2022 compared to 7.0% in 2021.

Although analysts said this type of post-pandemic growth isn’t sustainable, GDP continued to rise in Q1 by 0.5% from the previous quarter.

Last month the Treasury increased its forecast for the full year to 1.0% from 0.6%, the Reuters report adds.

Furthermore, sentiment has also been given a boost by a decline in Italy's debt-to-GDP ratio to 144.6% in 2022, a five-percentage point drop from 2021 and a 10-point fall since 2020. Prime Minister Meloni has set a target of a decline to 141.4% this year.

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