European bond fund managers are now backing Italy, Greece, and Spain due to improved economic profiles.

From Morningstar: 2025-06-20 12:45:00

During the 2010-2012 sovereign debt crisis, Italy, Greece, and Spain struggled, but now they are attracting bond fund managers due to improved economic profiles and efforts to support eurozone growth. Capital flows are increasing, with defense spending playing a role in the funds’ portfolios.

Southern European sovereign debt is making a comeback as economic growth and sound fiscal policies re-evaluate the countries’ debt. Fund managers are overweight Italy, Spain, and Greece, with significant exposure in their portfolios. Spain and Greece are projected to have strong GDP growth in 2025.

Funds like Nordea 1—European Bonds are overweight in Italian and Greek government bonds compared to Nordic countries. Southern European covered bonds are also attractive due to stronger economic and domestic fundamentals. Banks in Southern Europe have lower exposure to risks, making their bonds more appealing.

RBC BlueBay is now more neutral on peripheral countries but remains optimistic about Greece, Italy, and other countries. They see Croatia as an overweight due to positive fundamentals, while being underweight in Ireland. Country selection has historically driven alpha generation in bond portfolios.

Eurozone prospects look promising as defense spending increases and capital flows back to Europe. Italy and Greece have been top contributors to returns in recent years, highlighting the importance of country selection in bond investing. Geopolitical risks are driving higher defense spending and boosting eurozone growth potential.



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