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Why European Bond Fund Managers Now Back Italy, Greece and Spain


• Italy, Greece and Spain were among the countries hardest hit by the sovereign debt crisis in 2010-2012.

• These countries now have a better economic profile, which attracts government bond fund managers.

• Defense spending and efforts to support eurozone growth are attracting capital flows.

Eurozone Crisis is a Distant Memory

Fixed-income investors used to shun the government debt of Portugal, Italy, Greece and Spain, but these “peripheral” eurozone countries have made a comeback.

The sovereign debt crisis of 2010-2012 put extreme pressure on the already shaky public finances of these highly indebted Mediterranean European countries, sending bond yields soaring and prices plummeting.

Now economic growth and sound fiscal policies are behind this re-evaluation of southern European sovereign debt, and that is being reflected in the portfolios of bond funds. According to Morningstar data, many fund managers are currently overweight Italy, Spain and even Greece, whose debt was re-rated as investment grade in 2023.

In some cases, the overweight stance is significant: the Generali Investment Sicav—Euro Bond fund has a near 50% exposure to Italian government bonds, with Spanish bonds at 23.68%, and Greek bonds as 7.68% of the portfolio, as of April 30, 2025. For comparison, Italy makes up 21.57% of the Morningstar Eurozone Treasury Bond Index, Spain 14.99%, and Greece 1.17%.

Massimo Spagnol, fixed income portfolio manager at Generali Asset Management, says that Spain is the strongest country in the eurozone from a macroeconomic perspective. According to the Bank of Spain’s June projections, GDP growth will be 2.5% in 2025 compared with the ECB’s 0.9% forecast for the rest of the region.

Greece is also well-positioned from a macro perspective, Spagnol says. According to the International Monetary Fund, Greek GDP will grow by 2.1% in 2025, again above the area average.

In its latest investment review published this month, Eurizon Asset Management took a positive view of peripheral debt, especially Italy.

Among the strategies with the most exposure to Italy is Epsilon Qincome, with about 42% of assets in the country’s government bonds. Spain, on the other hand, weighs in at less than 6% of the portfolio and Greece at 8%, according to Morningstar data as of April 30, 2025.

Is Italian and Greek Debt More Attractive Than Nordic Countries’?

Funds with the most exposure to Italy and Greece include Nordea 1—European Bonds, which has 28% of its portfolio in Italian government bonds and 11.53% in Greek bonds, while Spain is underweight compared with the Morningstar Eurozone Treasury Bond Index, with 9.07% exposure versus 14.99%, as of May 31.

“In the context of our European bond portfolios, we currently have an overweight position in southern European covered bonds and government bonds compared with those of the Nordic countries and Germany. This reflects more attractive economic and domestic fundamentals,” says Fabio Angelini, senior investment specialist at Nordea Asset Management.

Away from sovereign debt, Angelini also highlights interest in the area’s covered bonds, which are issued by banks or mortgage institutions and securitized.

“Local banks in Southern Europe have less exposure to commercial real estate and private debt levels remain low, reducing systemic risk and strengthening credit resilience.”

“These factors support our belief that southern European guaranteed and government bonds offer a more attractive risk-adjusted return profile than those of the Nordic countries and Germany,” he adds.

For Debt, Country Selection Matters

Asset manager RBC BlueBay has recently taken a more neutral stance on peripheral countries. However it still sees many reasons for optimism.

“Having been positive Greece and Italy (vs France) earlier in the year, we are broadly neutral at this stage after the recent rally in spreads,” says Neil Mehta, portfolio manager on investment-grade bonds.

“We remain overweight Croatia, where the positive fundamental story and tight liquidity could see spreads tighten further, while we are underweight Ireland on the back of US sectoral tariff risks. On a broader Pan-European level, we remain positive on Romania on favorable valuation and politics.”

According to Morningstar data, the BlueBay Investment Grade Euro Government Bond fund, which has a Morningstar Medalist Rating of Bronze in the I share class, has 19.90% exposure to Italy (versus 21.57% of the Morningstar index), 2.04% exposure to Greece (versus 1.17% of the index), and 14.96% exposure to Spain, in line with the index—data as of April 30, 2025.

Historically, country selection has been “the main driver of alpha generation,” says Giovanni Cafaro, Morningstar’s analyst on fixed income strategies, who notes how in 2020 Italy and Greece had been the largest contributors to returns, while in 2024 long positions on Greek and Romanian government bonds were rewarding.

According to RBC BlueBay’s Mehta, there are reasons to be optimistic about the eurozone’s prospects.

“Heightened geopolitical risk is having a spillover into further defense spending, not just at a member state level but greater integration at institutional level. This is also boosting the eurozone growth potential at a time when many global investors are repatriating capital back to Europe after years of underinvestment.”

The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.



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