The prices of troubled European government bonds fell sharply this week, amid growing fears that Greece would default on its debts - but some investors are seeing the high yields caused by tumbling bond prices as an opportunity.
Yields - which rise when prices fall to compensate investors for the risk of default - rose to record levels on certain European bonds this week, with Greek government 10-year bonds yielding more than 17 per cent.
Spanish government bond yields also rose to 11-year highs, with 10-year bonds yielding nearly 6 per cent, as fears of contagion spread across the more troubled European countries - which also include Ireland, Portugal and, to a lesser degree, Italy.
On Thursday, the European Union and the International Monetary Fund struck a deal to ensure no immediate default on Greek bonds, with an agreement to loan money to Athens to repay debt maturing in July. But many bond fund managers are steering well clear of what they call "peripheral" government debt.
Johan Jooste, portfolio strategist at Merrill Lynch Wealth Management, believes the near-term policy risk is too large to buy government debt in Portugal, Ireland, Greece or Spain, all of which are struggling with low economic growth and high budget deficits.
Stefan Isaacs, a bond fund manager at M&G, is avoiding all peripheral bonds. "There is, in our view, a genuine risk to that principle that you'll get your money back at maturity," he says.
David Simner, manager of Fidelity's Euro Bond fund, says that his fund is "slightly underweight" peripheral bonds, but overweight government bonds from core European states such as Germany and the Netherlands.
Others are spying opportunities in stable countries where prices are a little lower in comparison to Germany, which is being viewed by most investors as the sole safe haven for European government debt at present. Yields on German Bunds dropped to seven-month lows this week, as a result.
Jooste points out that French and Dutch bonds are trading more cheaply than their peers, which he believes is due to a liquidity premium demanded by the market in comparison to Bunds.
But he warns that investors should not take on too much risk, recommending that they limit their exposure to medium term fixed-income investments that mature in 5-7 years, "because we don't know what's on the horizon".
However, other investors are willing to buy the debt of troubled European countries because they believe the market is pricing in too much risk.
Arif Husain, a fixed-income director at AllianceBernstein, believes there are currently opportunities for investors in both Spanish and Italian government bonds.
"Spain is related [to Greece]but doesn't have the same problems to the same degree," he argues. "Italy, I would say, is very much divorced from this situation except by its location and its higher debt burden. I think you'll get your money back in Spain and Italy if you hold debt to maturity."
Some believe that the political noise surrounding European government debt is now so loud that it is impossible for investors to make decisions based on fundamentals.
"Applying fundamental valuation techniques to European gilts is impossible so you now are entering into the realms of punting which is never good for private client managers," says Tom Becket at PSigma.
But he has picked corporate bonds for his personal portfolio that give exposure to Ireland, including bonds issued by Allied Irish Banks and Bank of Ireland.
"All bonds in Ireland have been sold off in unison, so taking a punt in some higher quality Irish banks with government-backing might be a good way of spending your money," he suggests.
Others argue that bond fund managers should be the least likely investors to take on too much risk.
"Most bond investors are there to generate income and protect clients' capital," says Bryn Jones, a bond manager at Rathbones, who has avoided any peripheral European debt. "I think investing in this sort of thing is not for the faint hearted."
Private investors who are willing to take the risk have few options to gain direct exposure. Leading UK stock brokers including Selftrade and TD Waterhouse do not trade government bonds outside the UK and US - though Barclays Stockbrokers does allow European government bonds to be bought directly.
Another option is to check out investinginbondseurope.org, which lists ways for private investors to buy European government bonds. The Spanish Treasury, for example, lists ways to buy and sell Spanish government bonds on its website and is one of the few countries to allow individual investors to buy bonds at auction.
However, most advisers recommend buying bond funds rather than trying to select individual government bonds - as the factors to weigh up include not only investment risk but political risk as well, which can be harder for a non-professional to judge.
Adrian Lowcock, senior adviser at Bestinvest, says: "We would recommend investors access sovereign debt through globally managed funds to be able to move in or out of the Eurozone area. Our pick is Thames River Global Bond."
Investors can also buy exchange-traded funds that track European government bonds. iShares offers listed tracker funds with lower annual charges than actively managed funds.