LONDON—For Italy’s sovereign debt the timing could hardly be worse: A budget standoff with Brussels is driving the country’s bond yields to new peaks, just as two credit agencies are weighing whether to cut their ratings to within one notch of “junk.”
But as markets move to price in chances of the eurozone’s biggest sovereign bond market losing its investment grade rating, major bond investors reckon political factors and significant contagion risk make that almost inconceivable.
