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Down and out less than a decade ago, Greece is this year’s top performing euro zone bond market, enjoying inflows from investors dismayed by shrinking yields elsewhere and elevated political risk in Italy, the bloc’s other high-yielding credit.

Nine years after Greece went bust and led creditors through a protracted debt restructuring, painful reforms are starting to bear fruit, with its debt ratio seen improving from this year.

This month, Greece’s five-year borrowing cost fell below that of Italy for the first time since 2008, remarkable given that Italy is an investment-grade credit, rated four notches above Greece at Baa3/BBB/BBB.

At B1/B+/BB-, Greece is classed as “speculative grade”, meaning it is ineligible for various global indexes that investors track. While that has left Greece the preserve of hedge funds and emerging market investors, it seems now to have started its journey back into the mainstream.

“We have a preference for Greek debt over Italy,” said Nick Wall, portfolio manager at Merian Global Investors, who ventured into Greek bonds in May 2017 after French President Emmanuel Macron was elected with an agenda of euro zone integration.

But there are other factors. The dramatic global bond rally, based on expectations of fresh monetary stimulus, is driving down yields across the world, including in southern Europe where Spanish 10-year borrowing costs have tumbled below 0.4%. Even with all its problems, Italy’s yields could soon slip below 2%.

“Everyone is desperate for a good carry story at the moment,” said Wall. “If there is an opportunity to get some short-dated positive yield, people are going to take it.”

“Carry” refers to a trade in which investors who can borrow at low cost buy higher-yielding debt for a profit.

While Greece does not provide data on how much investment its bonds have received this year, its yields have fallen more than for any other euro zone government debt. The premium investors demand to hold Greek risk over safe-haven Germany has meanwhile shrunk this year by 156 basis points.

Italy’s spread over Germany is down just 36 basis points.

While some of this is down to the rush for yield, many say the scale of the move is really about the rise of Greece and the decline of Italy, which risks losing its investment-grade status should its politics and debt outlook worsen.

Greek bonds have some drawbacks -- aside from the lowly rating, just 350 billion euros are outstanding, versus Italy’s 2.3 trillion euros. Of that, just 60 billion euros is in free float; the rest is with official creditors such as the European Union and International Monetary Fund.

That lack of liquidity makes Greece a no-go area for big funds. But some smaller investors are trying to diversify away from Italy, said a strategist at a bank in London.

The person requested anonymity as he is not permitted to speak about clients’ strategies, but said many had “supported” Greece’s 2.5 billion euro bond sale in March.

“(Clients) have reached limits in terms of their holdings of (Italy) and need to make returns on the funds they are managing, so Greece’s new issues have been active.”

The other factor is the euro.

Greece survived an exit scare in 2012 when it came close to leaving the 19-country currency bloc. Some fear Italy is now headed that way, as local politicians moot a pseudo-currency called mini-BOTs and clash with EU authorities over growing debt.

That risk is reflected in Italian credit default swaps (CDS), derivatives used to insure exposure to a credit.

Also, Greece’s market-friendly New Democracy party is expected to take power in July after it inflicted defeat on the leftist Syriza in May’s EU parliament vote.

That outcome sent Greek 10-year yields below 3% for the first time.

Said Haidar, chief investment officer at New York-based Haidar Capital expects to hold Greek debt to maturity, predicting yields will fall further versus the rest of Europe. In particular, he expects longer-dated Greek debt to outperform.

“Greece is in a sweet spot ... If you strip out official creditor debt, Greek debt is low,” Haidar added.