• Italy, Greece and Spain were one of the countries that were hit hardest by the 2010-2012 sovereign debt crisis.
• These countries now have a better economic profile that attracts government bond fund managers.
• Defense spending and efforts to support the growth of the eurozone attracts capital flows.
The Eurozone crisis is a distant memory
Fixed-income investors shunned government debt in Portugal, Italy, Greece and Spain, but these “nearby” eurozone countries have returned.
The 2010-2012 sovereign debt crisis put extreme pressure on the already volatile finances of these highly debt Mediterranean countries, causing bond yields and prices to plummet.
Today, economic growth and sound fiscal policy are behind a reassessment of sovereign debt in Southern Europe, which is reflected in the bond fund portfolio. Morningstar data shows that many fund managers are currently overweight Italy, Spain and even Greece.
In some cases, overweight stances are important Generali Investment SICAV – Euro Bond Fund As of April 30, 2025, Spanish bonds have exposed nearly 50% to Italian government bonds, which is 23.68% and Greek bonds, which are 7.68% of their portfolio. For comparison, Italy accounts for 21.57%. Morningstar Eurozone Financial Bond IndexSpain 14.99% and Greece 1.17%.
Massimo Spagnol, bond portfolio manager at Generali Asset Management, says Spain is the most powerful country in the eurozone from a macroeconomic standpoint. According to the Bank of Spain’s June forecast, GDP growth was 2.5% in 2025, compared to the 0.9% forecast for the remaining ECB in the region.
Greece is also well positioned from a macro perspective, Spagnol says. Greece’s GDP rose 2.1% in 2025, again surpassing the area average, according to the International Monetary Fund.
In its latest investment review published this month, Eurizon Asset Management gave a positive view, particularly on surrounding debt in Italy.
Among the strategies with the most exposure to Italy is Epsilon Qincome, which has around 42% of the country’s government bond assets. Meanwhile, Spain weighs 8% less than 6% of the portfolio and Greece, according to Morningstar data as of April 30, 2025.
Are Italy and Greece’s debts more attractive than Scandinavian countries?
The most exposed funds to Italy and Greece include Nordea 1 (European bonds), which has 28% of the Italian government’s bond portfolio and 11.53% in Greek bonds, but Spain is less weight compared to that. Morningstar Eurozone Financial Bond IndexAs of May 31, it was 9.07% exposure and 14.99%.
“In the context of European bond portfolios, there is currently an overweight status in Southern European and government bonds compared to bonds in Scandinavian countries and Germany. This reflects a more attractive economic and domestic foundation.”
Away from sovereign debt, Angelini also highlights interest in regional covered bonds issued and securitized by banks or mortgage institutions.
“Local banks in Southern Europe have less exposure to commercial real estate, remain low in private debt levels, reducing systemic risk and strengthening credit resilience.”
“These factors support our belief that Southern European guarantees and government bonds offer a more attractive risk-adjusted return profile than Nordic countries and German bonds,” he adds.
In the case of debt, choosing a country is important
Asset Manager RBC Bluebay has recently taken a more neutral stance towards its surrounding countries. But that still sees many reasons for optimism.
“Greece and Italy (VS France) were positive at the beginning of the year, so after the recent gathering in the spread, it’s very neutral at this stage.”
“We remain overweight Croatia, and while positive fundamental narratives and harsh liquidity can further tighten the spread, we are lower in Ireland against the backdrop of tariff risk in the US sector. At the broader pan-European level, we remain positive in Romania about favorable valuations and politics.”
According to Morningstar data, Blue Bay Investment Grade Euro Government Debt Fund, Morning Star Medalist Review Of the I-share class bronze, there are 19.90% exposure to Italy (21.57% in the Morningstar Index), 2.04% exposure to Greece (1.17% in the Index), and 14.96% exposure to Spain along the index as of April 30, 2025.
Historically, country choice has been a “main factor in the Alpha generation.” While Italy and Greece were the biggest contributors to returns in 2020, the long-standing position of Greek and Roman government bonds paid off, says Giovanni Cafaro, a bond strategy analyst at Morningstar, pointing to how Italy and Greece contributed to returns in 2020.
According to RBC Bluebay’s Mehta, there is a reason to be optimistic about the outlook for the eurozone.
“The increasing geopolitical risk is that it will lead to more ripples into defence spending, which is greater integration at the institutional level, as well as at the member state level. This increases the chances of growth in the eurozone when many global investors are repatriated to Europe after years of investment.”
