Yet with the central bank expected to eventually unwind its purchases of government bonds<br />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.<br />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<br />that favor the government instead of international investors.<br />“The risk-reward scenario to owning Italian bonds right now is just dreadful.”<br />Also drawing the attention of investors with skeptical views toward the eurozone is a paper issued by Mediobanca, the Italian investment bank.<br />Over the past year, aggressive bond buying by the European Central Bank<br />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.<br />Many American investors got in on the buying, too,<br />and for a period, Italian bonds were among the more popular investment plays for yield-hungry mutual funds in the United States.<br />Now, even with the recent rise in yields, a view is taking hold<br />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.
