Multiple Large Funds Increase Positions in Italian Government Bonds and European Corporate Debt Against the Trend
nashnova research
France's bond-market turmoil has dragged spreads wider across the eurozone, yet Aberdeen, Schroders, Ninety One and others are stepping in — buying Italian sovereigns and European corporate debt on the bet that systemic-risk fears are already overpriced.
What happened in France, and why is Italy caught up in it?
France's 10-year yield surged to its highest in nearly 25 years, approaching 5%. The spread over German Bunds widened by roughly two-thirds this month to 1.4 percentage points.
Italy's spread was pulled wider in sympathy, briefly topping 1.1 percentage points.
This means → the market is pricing "guilt by association" across the eurozone: France's political-risk bill is being charged to its neighbours.
Who is buying, and what exactly are they picking up?
Aberdeen Investments fund manager Alex Everett has opened a position for Italian bonds to outperform Bunds, arguing "this is not a replay of the early 2010s."
W1M fixed-income co-head James Carter calls the sell-off "clearly overdone" and has bought bonds issued by Axa and BNP Paribas.
Ninety One added European credit exposure via a high-yield index — but deliberately avoided French sovereign debt, targeting assets "caught in the crossfire yet with minimal actual French sovereign exposure."
Schroders had been underweight Italian and Spanish government bonds; as prices fell, it began trimming that underweight while adding European investment-grade credit.
Why did corporate bonds get caught in the crossfire?
Per the ICE BofA index, the option-adjusted spread — the extra yield corporate bonds pay over government debt — on European investment-grade credit widened from 0.8 pp in early September to 1.0 pp last Friday, then tightened slightly to 0.95 pp on Tuesday.
In plain terms = the fundamentals of high-quality corporate bonds haven't deteriorated, but panic over French politics triggered indiscriminate selling, artificially stretching the spread.
That gap between price and risk is exactly the logic these funds are buying into.
Why won't these funds buy French government bonds directly?
Ninety One's Borbora-Sheen was blunt: the firm "lacks confidence in adding French sovereign exposure ahead of the 2027 election."
Schroders' Ringer echoed: "France is far from resolved," so the focus stays on sovereigns and asset classes with stronger fundamentals.
This reflects a split conviction — France's own risk has not cleared, but Italian bonds and European corporates dragged down alongside it have already fallen to attractive valuations.
How is this different from the 2012 eurozone crisis?
Several investors point to the ECB's accumulated intervention toolkit and its repeated pledges to defend the euro as the key difference.
Yet France's central-bank governor pushed back on Wednesday: no ECB intervention is needed, and "the ECB is not there to deal with national budget problems."
This means → the safety net exists but will not be deployed lightly. Whether these contrarian bets pay off hinges on whether France's fiscal outlook clears up before the 2027 election.
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