By MARTIN ESSEX And JESSICA MEAD LONDON—Fund managers in Europe have invested more of their money in high-yielding euro-zone sovereign bonds in the run-up to and after the European Central Bank's approval last week of a plan allowing it to make unlimited purchases of government bonds from struggling countries in the currency bloc. Managers are dipping their toes back into the bonds of lower-rated euro-zone members after months of shunning Spanish and Italian debt, as confidence grows that the ECB's pledge to buy the bonds of fiscally frail countries will help alleviate tensions in the financial markets. It is too early to say whether the interest from traditionally long-term investors such as asset managers will last beyond this initial burst of optimism. But their willingness to buy Spanish and Italian bonds will be a source of relief for treasury officials in these countries, who have increasingly found themselves dependent on domestic financial institutions to sell their debt. Among investors who are now looking at Spanish and Italian bonds in a more favorable light, J.P. Morgan Asset Management, which had more than $840 billion in global fixed-income and currency assets under management at the end of June, has moved to an overweight position on Spanish and Italian government bonds relative to its benchmark. A benchmark for fixed-income fund managers is generally a bond-market index used to judge their performance against those of their peers. Standard Life Investments, the Edinburgh-based fund manager, has moved its large European bond funds' position on the sovereign debt of countries such as Spain and Italy to neutral from underweight, relative to its benchmark. It has €4 billion ($5.13 billion) under management in its European bond funds and another €2 billion in its global funds. BlackRock has boosted its holdings of Spanish and Italian debt too, as has BlueBay Asset Management. For J.P. Morgan Asset Management, the focus is now on short and medium-term Spanish and Italian sovereign debt, said Nick Gartside, international chief investment officer for fixed income. It is overweight both relative to its benchmark. He added that this had been an "inclination" since ECB President Mario Draghi pledged in late July to do whatever it takes to preserve the euro. Standard Life also moved before the program was confirmed last Thursday, and has become more cautious on core euro-zone sovereign debt. "We're underweight core bond markets where the potential for downgrades is greater than it was, such as the Netherlands and France," said Jack Kelly, a Standard Life fund manager. One factor tempering the enthusiasm is the conditionality attached to possible bond purchases by the ECB. Countries need to agree to a monitored program of cost-cutting before the ECB can buy their debt. That puts the onus on the Spanish government, which remains reluctant to seek assistance from its fellow euro-zone countries. Mark Dowding, co-head of investment-grade debt at BlueBay Asset Management, said BlueBay increased its holdings of Spanish and Italian debt before last week's ECB meeting, although it has sold some of them in the past few days to book profit. "The one concern is that if Spain delays asking for a bailout, you could see the rally in Spanish and Italian bonds lose a bit of momentum," Mr. Dowding said. "We still have a constructive medium-term view on Spanish and Italian bonds and would look to buy more bonds if prices decline," he added. Mr. Dowding isn't alone in being cautious in the longer term. "I think this is an important development. It's not a game changer but it buys time," said Mr. Kelly. But he added that he doubted the euro zone's politicians would take advantage of it. "We were encouraged. We feel the plan was fairly comprehensive. I think that in the short run, the rally is likely to be sustained," said Mr. Gartside. "But there's worry about implementation risks, the ECB becoming the euro-zone bank supervisor and the U.S. fiscal cliff. It won't be a straight line," he added. Spanish and Italian bond yields have plunged since the ECB signaled its commitment to buy bonds of fiscally frail countries to lower their borrowing costs. The yield on the benchmark two-year Spanish bond is currently trading at 2.76%, near its lowest level in five months, while the corresponding Italian bond yield is at 2.58%, close to its lowest level in six months. Investors have also bought longer-dated bonds in a search for yield, with the 10-year Italian bond yield now at 5.19%, a five-month trough. The equivalent Spanish yield is at 5.62%, also a five-month low.

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