Yet with the central bank expected to eventually unwind its purchases of government bonds
and other assets, investors are increasingly becoming concerned about how Europe — and Germany, in particular — can cope with escalating debt pressures in Italy and Greece.
As Greece proved in 2011, having your debt governed by local law — rather than by courts in London and New York — makes it easier to achieve terms in a debt restructuring
that favor the government instead of international investors.
“The risk-reward scenario to owning Italian bonds right now is just dreadful.”
Also drawing the attention of investors with skeptical views toward the eurozone is a paper issued by Mediobanca, the Italian investment bank.
Over the past year, aggressive bond buying by the European Central Bank
and encouraging signs of economic growth across Europe have helped the eurozone overcome a series of political jolts, including Britain electing to quit the European Union and Italian voters rejecting the proposals of a reform-minded government.
Many American investors got in on the buying, too,
and for a period, Italian bonds were among the more popular investment plays for yield-hungry mutual funds in the United States.
Now, even with the recent rise in yields, a view is taking hold
that a yield of 2 percent is not sufficient given the risk that Italy may be forced in the future to impose a haircut on its private sector creditors — or, in a more extreme scenario, have to exit the euro.