You will rarely hear fixed income managers saying they prefer stocks to bonds. Most argue their asset class is great and that they're particularly good at it. But, right now we can see only a few pockets of interest in the debt markets. In many cases, investors would be better off buying equities, despite historically high share prices.

There are various reasons for this situation. For one thing, extraordinarily low and in some cases negative government bond yields create a pretty desperate situation for investors with an urgent need for income. Ultimately, someone must hold to maturity, and surely there's a better alternative than a negative yield - another country or asset class perhaps?

As a result, some pensions, for instance, are trying to shrink their funds, while others are seeking to sustain their assets until such a time as liabilities are smaller because yields have risen again. Hence, the growth in demand for absolute return and unconstrained strategies in the past few years.

In respect of the corporate bond market, there are three aspects that, in combination, are potentially dangerous.

One is that its capitalization has doubled since 2008 after some US$5 trillion of inflows into fixed income funds - and yet more supply is in the pipeline. Secondly, the warehousing and market-making capacity of banks have shrunk, meaning a far smaller volume of trading in the secondary market. And lastly, daily dealing of bonds is the most popular format for holding these instruments such as in Ucits or 40 Act structures.

These three factors together could create a problem in the form of a liquidity crunch if the big inflows of recent years start to reverse significantly. Not that there will be a lot of defaults as interest rates are likely to rise at a steady, smooth pace, but bond prices may well drop 10% in a short space of time. That may well be the buying opportunity many are looking for.

Europe is one to avoid. European debt, in particular, is particularly unattractive right now. We cannot see investment-grade bonds providing an average yield of 1% as a good buy relative to equities. And the European high-yield index hardly deserves the label 'high' at the moment, and remains 2.95% over cash.

It's very difficult to buy high-quality income for yields much higher than 2% or 3% now. Once you get above that, you start to pick up sectors or countries that are not necessarily secure in terms of their income or capital. Indeed, once you get beyond a certain, quite low number in almost every asset class, then if you reach for a little more return, the drop in quality to get it seems particularly risky at present.

However, certain assets are worth considering. Where European debt is overbought, the US is somewhat oversold and good value - some energy names in particular.

On the emerging-market debt front, we like Brazil, Mexico and South Africa. But since then US Federal Reserve chairman Ben Bernanke's 'taper talk', EM growth and currency appreciation have been almost universally disappointing. So we want to surgically extract the one thing that's exciting for us in EM debt: the level of yields.

For example, Brazilian five-year sovereign bonds are yielding 13%, but the country is tipped to see zero growth for three years. That's an extraordinary difference from, say, Italy, which also has pretty limited growth prospects and a relatively low credit rating, but five-year government debt is yielding less than 1%.

We're not excited by the Brazilian real or dollar-denominated Brazilian bonds, so we would buy local-currency bonds with five-year credit protection (at around 2%) and fixed income futures to hedge out the currency risk. We are then looking for political problems that would cause credit default swaps to widen and bond yields to fall if the central bank were to cut rates."

It's quite a pessimistic strategy, but if this situation were to extend to the three countries I mentioned, that would be helpful to our cause.

When it comes to Asia, the region is home to the most attractive corporate bonds from a yield perspective right now. Some Chinese property credits are solid enough, and certain names in India are interesting. There are also some petroleum-related credits we think are reasonable value.

Meanwhile, globally subordinated financials are interesting. That is, bonds that will no longer be useful for banks and so will be retired in favour of new types of issuance, such as contingent convertibles bonds, or Cocos.

There will come a time soon enough when fixed income will be a more enticing market for investors, but for now, being very selective is the name of the game.

Tim Haywood is an investment director at GAM