In a January speech to frankfurt’s chamber of commerce, European Central Bank president Mario Draghi declared that “the darkest clouds over the euro area subsided” in 2012. Many market observers agree — and credit Draghi’s July declaration that the ECB would do “whatever it takes to preserve the euro” with calling forth the necessary sunshine to dispel the gloom. Words alone would likely have had little effect, but the bank followed up with the creation of Outright Monetary Transactions, a program through which it would buy the bonds of member countries, in effect becoming a lender of last resort.

These moves appear to have removed much of the negative overhang weighing on European markets, paving the way for double-­digit returns for the region’s high-yield, investment-grade and sovereign debt offerings. Since the as-yet-­untapped OMT was introduced in September, the bonds of some of the euro zone’s most troubled economies — Greece, Ireland, Italy, Portugal and Spain — have risen by 11 percent or more, through mid-­February. But Europe’s economic situation is still precarious, and any number of potential shocks could widen spreads and dampen returns. Moreover, policymakers have yet to address the region’s long-term growth prospects.

One key issue for analysts and investors is determining whether the current calm is going to last. Laurence Kantor, Barclays’s New York–based global head of research, believes it will. “You’ve seen a rally in nearly all the European markets since last summer — stocks, bonds in all kinds of sectors — and the negative tail risk has fallen,” he says. “Policymakers have taken other actions before, but the ECB’s latest action has lasted much longer than the other respites from market turmoil, and we do think it has staying power. But if something happens that would upset the market, tail risks could rise once again.”....