Which bonds should you buy now?

Leslie Shaffer | Writer for
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The future direction of interest rates and whether bonds are expensive or cheap may be up for debate, but some analysts are stepping up with their bond picks, and emerging Europe is among the favorites.

"Under a supportive central bank, peripheral European credit remains one of the few areas in the developed credit markets where spread compression remains a possibility," Mohit Mittal and Saumil Parikh, portfolio managers at Pimco, said in a note, adding that it prefers sovereign debt, followed by financial and then nonfinancial credit.

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The European Central Bank (ECB) earlier this month introduced aggressive easing measures including cutting the deposit rate for banks from zero to minus 0.1 percent and the benchmark interest rate to 0.15 percent from 0.25 percent. It will also offer cheap long-term loans to banks worth up to 400 billion euros, and there may be more easing on the way.

ECB measures 'bullish for bonds'
ECB measures 'bullish for bonds'

Societe Generale is also positive on peripheral European bonds, although it also likes emerging market euro-denominated bonds in general.

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"Despite the bold action of the ECB (which should have boosted euro-denominated assets), we highlight the fact that emerging market euro bonds are trading particularly cheap relative to the U.S. dollar ones," Regis Chatellier, a strategist at Societe Generale, said in a note Monday. Bond yields move inversely to prices.

After underperforming dollar assets since the end of April, "[emerging market] euro bonds offer substantially more value from a credit perspective, and may be also more resilient to the downside," he said.

Chatellier believes the underperformance of euro bonds is likely due to ECB easing causing the euro to depreciate. But he added, "the very accommodative ECB policy will eventually boost risky assets in the eurozone and exceed the impact of the euro depreciation to the extent that funding costs for euro-based investors may also decline, while that of dollar-based investors is likely to increase."

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Societe Generale calculates that emerging market euro-denominated bonds are about 20 basis points cheaper, with a chance to mean-revert.

"Polish, Croatian and Mexican euro bonds have the highest chance to mean-revert to their historical levels relative to their U.S. dollar peers," he said.

Bonds: Favor Spain over Italy?
Bonds: Favor Spain over Italy?

But while emerging Europe may be popular, high-yield bonds are beginning to get the cold shoulder from analysts -- although not always for the same reasons.

Read More Five bond market risks to worry about: Pimco

The segment has been popular this year, with around $23.38 billion pouring into high-yield bond funds so far, nearly a quarter of the total $97.67 billion that has flowed into bond funds so far this year, according to data from Jefferies.

Julius Baer recommends shifting out of high-yield corporate bonds and into inflation-linked and hard-currency emerging market bonds.

It expects this week's Federal Reserve meeting could lead to a shift in expectations for the first interest rate hike, which could trigger volatility in the segment.

Read More Go figure: Investors still pump money into bonds

Pimco also advises shifting out of the high-yield segment, but for a different reason: based on its "new neutral" forecast for economic growth, it expects rising default rates.

Its new neutral forecasts lower-than-consensus economic growth, hovering around 2 percent, compared with the "old normal" view of 3 percent.

"Defaults in the low quality space will be higher than expectations given low real growth," the Pimco note said. "Our preference would be in high quality U.S. credit over low quality. In cases where we go into low quality, we plan to focus on shorter maturities to stay ahead of the anticipated pickup in defaults."

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1