Investors have been snapping up the debt of some of the eurozone’s most indebted countries to lock in attractive yields, as the traditional dividing lines between the bloc’s riskier and safer bond markets become increasingly blurred. 

Traders have been encouraged by declining debt ratios in Italy, Portugal, Greece and Spain, say analysts. That has come on top of a broad rally in eurozone debt late last year on hopes of interest rate cuts, and helped narrow the gap between Italian and German borrowing costs — a key measure of eurozone risks — to 1.56 percentage points, near a two-year low. In October, the gap was more than 2 percentage points. 

The tightening of these spreads marks a major shift in sentiment across the euro area, just over a decade after a long-running debt crisis almost broke the single currency and led to bailout loans for a number of countries.