Eurozone's South still poses an enormous risk

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"The markets are too complacent," said Daniele Antonucci from Morgan Stanley. "We think Italian bonds and European equities broadly under-price the risk of the Italian referendum." Portugal is also falling out of favour again after three consecutive months of contracting industrial output. The country remains in a low-growth trap, struggling to whittle down the highest debt ratios in the developed world. Morgan Stanley's Joao Almeida recommends shorting Portuguese debt, warning that a lurch back into crisis remains a latent risk.  "A weak economic structure, along with high economy-wide leverage and a fragile banking system, make the debt trajectory vulnerable," he said.

Foreign appetite for gilts revives as bond worries shift back to eurozone