This month's French government bond selloff spread across the entire eurozone market, drawing large investors to bargain-hunt among heavily beaten-down assets, including Italian government bonds and corporate credit. Investors are betting that fears of contagion have been somewhat overdone.

The selloff in French government bonds pushed the country's 10-year benchmark yield to a nearly 25-year high this month, approaching 5%. Concerns are mounting over the sustainability of its 3.5 trillion euro debt load.

A key gauge of investor anxiety — the spread between French 10-year bonds and German 10-year bunds — has widened to 1.4 percentage points, up by about two-thirds from the start of the month. Fears that a French debt crisis could trigger knock-on effects have widened sovereign spreads across the rest of the eurozone in tandem, with Italy's spread rising above 1.1 percentage points.

Several large asset managers said they have stepped in to buy the dip in various bonds dragged lower in the selloff, judging that the eurozone will not repeat the kind of economic collapse seen in the bloc's debt crisis more than a decade ago. abrdn fund manager Alex Everett said: "This is not a repeat of the early 2010s crisis. Despite the recent sharp volatility, Europe's government bond market today has far more solid institutional support and market confidence." He said he has built new positions betting that Italian government bonds will outperform German bunds.

Amid the market turmoil, corporate credit spreads have also widened. According to the ICE BofA index, the option-adjusted spread on European investment-grade bonds relative to government debt rose from 0.8 percentage points in early September to 1 percentage point last Friday, before edging back to 0.95 percentage points on Tuesday.

James Carter, co-head of fixed income at asset manager W1M, said: "We believe the recent market moves have been an overreaction and have been buying the dip in selected French corporate bonds," with the firm purchasing notes issued by the likes of AXA and BNP Paribas.

Some fund managers have been buying French government bonds again, while others said they are reluctant to fight a long-term weakening trend. Far-right presidential frontrunner Marine Le Pen's pledge to adhere to fiscal discipline helped yields fall on Tuesday; but they rebounded on Wednesday as oil prices rose. Investors say the direction of France's public finances remains highly uncertain ahead of the presidential election in April next year.

Part of the reason investors judge this crisis will not repeat the eurozone debt crisis is that the European Central Bank now has a full toolkit for stabilizing markets, along with years of tough rhetoric defending the euro. The governor of the French central bank said on Wednesday that the ECB has no need to intervene for now, adding that the central bank is "not here to solve countries' budget problems." A trader said: "The market has somewhat overreacted to whether the ECB needs to step in."

Fund company Ninety One has also added to European credit exposure through high-yield bond indexes. Portfolio manager Jason Borbora-Sheen said: "Although there are some factors that could help narrow French government bond spreads ... we do not have the confidence to directly add French sovereign debt before the 2027 election. Instead, we have added to other assets dragged down by the French government bond move but with very low actual French sovereign risk exposure."

Schroders global fixed income fund manager James Ringer said the firm had previously maintained an underweight position (below benchmark allocation) in Italian and Spanish bonds. He added that as bond prices fell, the firm has reduced the size of that underweight while increasing exposure to European investment-grade credit.

"France's situation is far from resolved," Ringer said. "So we are looking to other sovereign bonds and asset classes with sounder fundamentals."