While the eurozone economy is barely registering positive growth, investors are flocking to its bonds.
"Investors are choosing to overlook all sorts of things,"
Pimco CEO Mohamed El-Erian told The New York Times.
The eurozone's non-annualized growth registered only 0.1 percent in the third quarter. "Things are going better, but they are by no means good," Jacob Kirkegaard, a senior fellow at the Peterson Institute for International Economics, told
The Times.
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Some experts say the strength of European bonds stems from purchases by institutional investors exiting emerging markets in the wake of the Federal Reserve's decision to taper its bond buying.
These investors view European economies that have been bailed out as a safer commitment than emerging markets.
Some investors also are looking to top the low bond yields available in the United States. U.S. 10-year Treasurys yielded 2.84 percent Thursday morning, compared with 3.83 percent for 10-year Italian government bonds and 3.73 percent for 10-year Spanish government bonds.
Traditional asset managers earning less than 2 percent on safe-haven assets "are probably thinking these countries are not a real credit risk anymore, so why not take 4 percent instead?" Kirkegaard said.
The European Union reported Wednesday that combined eurozone government debt dipped to 92.7 percent of GDP in the third quarter from 93.4 percent in the second quarter.
But GDP growth will have to increase for that trend to continue, economists say. "A meaningful inflection point in debt dynamics is unlikely in the absence of an acceleration in . . . nominal GDP," Neville Hill, an economist at Credit Suisse, told
The Wall Street Journal.
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