The government debt of Spain, which has cheapened dramatically in recent years compared with equivalent German bonds due to fears of default by the Iberian nation, is starting to look attractive in price terms, Invesco Perpetual argues.

In the past two weeks, notes Paul Read, co-head of fixed interest, Spanish bond yields, which move inversely to bond prices, are trading at around 200 basis points over their equivalents in Germany, having been more or less the same two to three years ago.

The yield on the benchmark Spain 10-year bond was around 4.46 per cent, as of 16 July (source: Bloomberg data), compared with the comparable 10-year German bund of 2.67 per cent.

Meanwhile, Read strikes a sanguine note about UK government bonds (gilts), playing down the threat of significant interest rates in the coming year or two, as he argued that the threat of inflation taking off is low.

“The UK is still a firm AAA, with the outlook remaining ‘negative’. Anyone who comments on markets, in a post-Lehman era, has to say there is some tail risk in a lot of things. So there is some risk that there will be a collapse in gilt prices, but I think that it is a small risk,” he said.

“I think we are likely to have very, very low official interest rates for several years; this will be part of the bargain between what the government has to do with fiscal policy and the Bank of England on the monetary policy side. If the Bank perceives that fiscal policy is being well managed and the debt burden is coming down over time, it will be happy to keep short-term rates at a low level for a long time,” he said.