Which bond is riskier: Apple or Spain?

Investor appetite for yield has reached such voracious levels that valuations have started to look "strange", bond investors have said, with 10-year Apple bonds and 10-year Spanish government bonds now trading at similar levels.

In the current super low interest rate environment it is now a struggle to find yield opportunities with reasonable risk, as fewer assets than ever before are offering yields of over 4 percent, fund managers argue.

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Dollar-denominated Apple 10-year bonds currently offer investors around 3.4 percent interest, following a $12 billion corporate debt sale at the end of April.

Head of fixed income at Invesco Perpetual Paul Read compared this to euro-denominated Spanish 10-year paper, which is yielding near record lows of around 2.9 percent.

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"I am not saying either one is a big credit risk, I don't think either of them will go bust, but I do think the way they have traded is interesting," said Read, speaking at a Morningstar investor conference in London.

"Admittedly one is in dollars and one is in euros, now Apple 10-years in dollars yields more than Spanish 10-years in euros. Apple's market cap is big if not bigger than the IBEX," said Read.

"Apple has got a $150 billion in cash, Spain has got around a trillion in debt - so it is interesting that the market thinks they are the same risk," he added, warning investors need to careful not to be drawn into taking too much risk at the wrong prices.

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Data from Bank of America Merrill Lynch showed investors have significantly increased their overweight to peripheral debt and the trade is now considered the most "crowded globally".

Chief investment officer at AXA Investment Management, Chris Iggo said his enthusiasm for the peripheral trade "has diminished" from a valuation point of view as debt problems in the countries are far from over.

"These two economies are still operating well below their 2007 levels of GDP and debt/GDP ratios are higher," he said.

Safe income?

Read said pre-2007 traditionally safe income such as U.S, deposits, gilts and U.S. Treasurys were yielding between 3 and 5 percent, assets which are "basically risk-free," he said.

In aggregate the market has lost $750 billion of very safe income a year, he said, and investors are now forced to buy a "10- year subordinated Spanish bank to get what you got in 2007 for having money in government bonds".

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Global head of research at Societe Generale, Patrick Legland, said the current environment is the "last chance to invest in assets with yields above 4 percent".

"By the very end of the year the U.S. Treasury 10-year yield should rise above the 3 percent mark but should remain below 4 percent. In this low rate environment, it is harder than ever to find investments offering attractive yields of above 4 percent with reasonable risk," he said.