AB's senior portfolio manager for fixed income investments, Jeremy Cunningham, said the shake-out and stress-testing of European banks had left some of the bigger names in good shape, despite continued sluggishness across the eurozone.

Subordinated debt issues by national champions – the main banks – across northern Europe offered "compelling valuations", he said.

"One of the key opportunities that we see remain in the financial sector," he said.

"When you look at high-yield corporates in Europe, a lot of those credits are triple-B rated.

"So they're high-yielding, but they're still investment grade."

Underpinning the banks' improved risk profile was a lift in economic fundamentals across the European Union, he said.

Although still in its early days, the European Central Bank's quantitative easing (QE) – or bond-buying – program was helping to keep fixed-income yields low and prices high, he said.

It had also helped keep the euro competitive, which was good for exporters and import-exposed companies.

"We are not shooting the lights out but there are a few tailwinds," he said.

"You've got QE; you've got the weaker euro, which is obviously good for exporters, and you've got the third tailwind, which is the lower oil price."

His comments chime with those of a range of investment experts in recent weeks, whose gross domestic product growth forecasts for the eurozone this year go as high as 2 per cent.

AB is less bullish, suggesting growth this year of about 1.3 per cent.

In the US, where investors are betting on a gradual increase in interest rates this year, Mr Cunningham has reduced his exposure to long government bonds and is buying corporate credits likely to do well out of the recovery.

He has also taken more positions in US mortgage-backed securities on the strength of improved fundamentals in the US property sector.

In emerging markets, Mr Cunningham favours local currency sovereign bonds in Brazil, South Africa, Singapore and Indonesia.

In these countries, the disinflationary effects of a falling oil price would lead to a change in interest rate expectations, he said, which would drive down yields.

"One of the advantages of a flexible, global and active approach is that it allows you to take positions in respect of a whole range of risks and opportunities; not just the US rate rise, for example, but also the fall in world oil prices," Mr Cunningham said.

He said this diversification was a vital hedge against fresh volatility as the US began its first monetary tightening cycle in nine years.

He warned that cutbacks in market making by investment banks, coupled with underpriced risk in some credit classes, would lead to liquidity crunches as the US began to lift rates.

As yields rise, prices drop, leaving investors with book losses on their holdings. If finding buyers to draw a line under those losses proves difficult, the prices drop further.

Mr Cunningham said this could be especially true of non-investment-grade corporate issuance – known as junk bonds – in the US and Europe.

"This year will be epitomised by increased levels of volatility," he said.