French government bonds were sold off this month and the weakness spread across
the eurozone, prompting large investors to buy deeply sold assets such as
Italian sovereigns and corporate debt on the view contagion fears may be
overblown. The French 10-year premium over Germany widened to about 140 bps,
roughly two-thirds wider than at the start of the month; the Italian 10-year
spread climbed above 110 bps. Several major asset managers said they have
decisively bought bonds hit in the rout, arguing a repeat of the early-2010s
eurozone debt collapse is unlikely. A manager at Aberdeen said Europe’s
government bond market now has materially stronger institutional backstops and
steadier investor confidence than in the early 2010s.
