Opportunity for yield spread convergence is emerging, with French 10-year government bonds relatively undervalued compared to Italy.

After adjusting the directional spread of interest rates between the two countries, French 10-year government bonds appear "cheap" relative to Italian bonds of the same maturity. According to regression analysis of the three-month fixed-term yield, the yield of French 10-year government bonds is approximately 5.1 basis points higher than the yield of Italian 10-year government bonds adjusted for beta. This price differential reaches 2.2 standard deviations, indicating that the current spread level of French and Italian 10-year government bonds is significantly deviating from normal statistically, potentially signaling a trading opportunity for the spread to revert to the mean.