FIXED-INCOME INVESTORS are no doubt regretting their unbridled enthusiasm for corporate debt since 1999 but the effect of credit volatility on the appeal of government bonds has been complex.
Economic weakness has damaged claims that deficits would soon disappear, and government borrowing with them. Germany and Portugal, for example, are now in danger of passing the 3% debt-to-GDP ceiling set out in the Maastricht agreements.
Technical factors have been narrowing spreads between eurozone governments over the year.
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