(Bloomberg) -- The once-yawning gap between Italian and French benchmark borrowing costs shrunk to below 10 basis points, reflecting a shift in how investors rank European government debt.

Less than three years ago, Italian 10-year bond yields were nearly 200 basis points more than the equivalent French rate. That difference has since plunged to the narrowest since 2005. Yields on shorter-dated Italian bonds have already fallen below those on French peers.

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Strategists at Commerzbank AG last month forecast that the 10-year gap will close completely. If that happens, it would be the first time since the two yields have traded in line since 1998, according to data compiled by Bloomberg.

The narrowing spread shows the long-standing demarcation between the “risky” periphery and “safe” core has become increasingly blurred.

For years, Italian bonds offered a juicy pick-up to peers because investors demanded higher compensation for a tumultuous political backdrop and mountain of government debt. But Prime Minister Giorgia Meloni has ushered in an era of stability in Rome and efforts to consolidate debt are underway.

In contrast, French debt was swept up in a rout last year after President Emmanuel Macron’s snap elections threw a spotlight on the country’s large fiscal deficit. While the bonds have since partly recovered, yields have settled at a higher level relative to peers than in the past.

The move came as European bonds rose on Monday, paring a selloff from last week. Yields on 30-year German bonds fell as much as six basis points to 3.29%, while yields on the two-year tenor fell as much as two basis points to 1.96%.

Italy’s spread to other European nations, notably Germany, has long been an obsession for Meloni, guiding her decision-making on a wide range of issues, including banking and defense. Her approach has been shaped by the experience of former prime minister Silvio Berlusconi in 2011, who was ousted after spreads spiraled during the European sovereign debt crisis.

Meloni now guides Italy’s fourth-longest government since it became a republic, adding to a sense of stability that previous governments had difficulty projecting. Though growth remains sclerotic and is seen below 1% of output in 2025, investors have placed a big premium on her perceived ability to govern with a sizable and stable majority.

--With assistance from Alice Atkins and Donato Paolo Mancini.

(Updates with additional context in final two paragraphs.)

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