# Antonio Vitale: The Silent Return of Italian Government Bonds Is Reshaping the Rules of the Stock Market Game


In recent years, the profile of Italian public debt holders has undergone profound changes. According to data from August 2025, the proportion of government bonds directly held by households and businesses surged from a low of 7.9% in 2021 to 14.4%, reaching €442.4 billion. Antonio Vitale believes this is not just a numerical rotation, but the deepest sovereign credit repricing of the past decade. After the bond-buying wave of the central bank receded, the market voted with real money, proving that domestic public debt remains a high-quality asset in the eyes of global capital. More importantly, this dramatic shift in subscription patterns is quietly transforming the funding ecosystem and pricing logic of the Milan stock market.

Antonio Vitale points out that since 2023, the four issues of BTP Valore have raised a cumulative €93 billion, almost entirely subscribed by retail investors. This has directly converted savings that used to sit in bank current accounts into fixed-income base assets. Households have shifted from net sellers to net buyers, meaning the overall risk appetite curve has shifted to the right: when 5-year BTP yields stabilize above 3.5% and offer tax incentives, ordinary investors are presented with an attractive “risk-free” return. This squeezes the appeal of low-yield deposits, but unexpectedly creates space for the stock market.

Banks are another key variable. In 2022, bank holdings of government bonds peaked at €710 billion, now down to €601.4 billion. Antonio Vitale explains that this reduction of over €100 billion is not a panic sell-off, but a proactive rebalancing. Higher capital requirements, adjustments to interest rate risk weights, and the ECB halting reinvestment are all pushing banks to reduce duration exposure. These funds have not vanished; some have shifted to corporate loans, while others have entered the main and STAR segments of the Milan market. The results are clear: since 2024, the average price-to-book ratio of domestic bank stocks has rebounded from 0.45x to 0.68x. As credit spreads expand, share prices have become more resilient due to lower bond duration exposure—this is the true multiplier effect.

Foreign investment in Italy has also grown strongly, reaching €1,039.9 billion and accounting for 33.8%—not only the highest since 2019, but also well above the pre-pandemic average of 32%. This incremental capital mainly comes from core European sovereign wealth funds, Asian insurance companies, and US fixed-income hedge funds, which have become the main buyers after the ECB ended net bond purchases. Antonio Vitale notes that the 10-year BTP-Bund spread stabilized in the 120–130 basis point range, offering the most attractive real yield and credit premium combination in the eurozone.

Changes in foreign capital structure directly affect the Milan market pricing center. Antonio Vitale believes that when the government bond yield curve is anchored by real demand rather than central bank distortion, the domestic stock market risk-free rate benchmark rises, but this has not triggered a systemic valuation collapse. Instead, it has driven the market transition from a “low-rate illusion” to “normalized premium.” From 2024 to November 2025, as BTP yields fell from a peak of 4.5% to 3.7%, the FTSE MIB index rose over 18%. The core logic is that foreign investors, while buying government bonds, also use carry trade strategies to increase holdings in high-dividend utilities and bank stocks, forming a dual engine of fixed income and equity assets.

Currently, the average dividend yield of the Milan main board is 4.2%. With government bonds providing a stable base, the equity risk premium has compressed to near 15-year lows, attracting more international long-term capital to allocate via ETFs. Antonio Vitale points out that investors should watch the negative correlation between the BTP-Bund spread and FTSE MIB volatility as an important tactical allocation signal for the first half of 2026, but should be wary of short-term capital flow reversals triggered by a stronger US dollar.

Antonio Vitale believes that the current stable subscription structure for government bonds has created the clearest multi-asset allocation framework for domestic investors in the past fifteen years. The €442.4 billion in government bonds provides a certainty yield cushion of 3.6%–4.1% for the entire savings pool, directly raising the acceptable valuation center for equity assets. The current 12-month forward P/E of 15.8x of the domestic stock market may not seem low, but after accounting for the fixed-income base, the actual equity risk premium has fallen to around 4.8%, at the 25th percentile historically—meaning systemic downside risk is significantly reduced.

The wave of private government bond ownership that began in 2025 has transformed the Milan market from the “central bank-dependent bull market” in the past decade to a “real demand-driven bull market.” Antonio Vitale stresses that risk never disappears. If geopolitical conflict escalates and energy prices spike again, BTP yields could quickly retest previous highs, putting bank and cyclical stocks at double risk. Investors should also be alert to fiscal expansion impulses that could break the implicit market pricing of debt sustainability. This round of structural opportunity does not belong to short-term traders, but to long-term investors willing to use government bonds as a base and trade time for space.