Investing Around Europe's Sovereign Debt Crisis

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The fund is down about 10.3 percent since May 3, with a yield currently at 5.28 percent. "For something that's 80 percent government bonds, that's not bad," says Larkin.

A higher-grade choice would be the SPDR Barclays Capital International Treasury Bond ETF (BWX), which tracks the Barclays Capital Global Treasury Ex-US Capped index and prefers bonds of developed economies. "If there's normalization [of the euro zone situation], you'll get [currency] appreciation of 5 percent, plus income on a diversified basket of country debt. I would think it's pretty safe," he says.

Looking at Argentine sovereign debt

The Ivy Global Bond Fund is currently geared more to corporate than government bonds. The managers say they prefer to try to get a handle on company risk rather than on the direction of either interest rates or currencies. "We can get the same yield on a two-year corporate that you might be able to get on a four- or five-year sovereign," says Waddell & Reed's Beischel.

Argentina is one of the few countries whose debt interests Beischel and co-manager Dan Vrabac because the country seems to have resolved its legal problems and is regaining access to global capital markets. They're also considering such Argentine corporate debt as issues of electric-transmission and -distribution companies.

Beischel and Vrabac are steering clear of financial companies, as well as Chinese property companies. They like Mexican homebuilders, which seem to be lagging and misunderstood, with investors not taking enough notice of the government's extensive support for the industry or the mismatch between housing supply and demand. They also like commodity infrastructure plays such as Noble Group Limited in Singapore, which ships agricultural and industrial commodities to growing populations in various parts of the world.

Key Private Bank (KEY) in Cleveland would ordinarily be looking at how to diversify away from U.S. Treasury bonds, but it's postponed any reallocation moves until there's more certainty about the outcome in Europe, says Bruce McCain, the firm's chief investment strategist.

"There's no obvious mechanism in the euro zone area that's big enough and has the firepower to guarantee what's going on in Greece," he says. "So you have potential for this to go a lot further in terms of a selloff of sovereign debt if investors truly begin to panic."

Bogoslaw is a reporter for Bloomberg Businessweek's Finance channel.

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