European bond markets reignite contagion risk; Morgan Stanley: If massive volatility persists, it may draw central bank attention.

After a sell-off that stirred memories of the eurozone debt crisis 15 years ago, traders are on high alert for signs of contagion in Europes government bond market. When financial stress in one sovereign debt market spreads to otherseven if that spread appears to lack a strong justificationit triggers disorderly price moves that worry central banks and, in extreme cases, force them to intervene. That was a hallmark of the 2011-12 eurozone debt crisis. Were starting to see the first signs of contagion, said Jeff Mueller, co-head of fixed income at Morgan Stanley Investment Management. If the violent price moves observed on October 1 persist for some time, this could draw the attention of policymakers.