Stefan Angele, head of investment management at Swiss & Global, said yield distribution for 10-year government bonds in developed markets was at its lowest level for the past 30 years.
He said savers are being used to foot the bill for governments that are trying to reduce debt without having to implement politically unpopular austerity measures.
But investors continue to buy government debt in these regions because they are holding onto the archaic notion that it represents a safe haven.
Head of fixed income at S&G, Enzo Puntillo, added that in the UK the 2% yield on 10-year Gilts was actually -3% once inflation was taken into account, which over the full term would amount to -30%.
Obviously if UK inflation were to drop significantly or yields were to improve, this would not be the case.
But even if inflation fell to its target level of 2% and yields stayed at their current rate, investors would still receive no real yield.
In comparison, Angele said the yield potential of stock markets was very attractive at the moment, although volatility in the asset class is undeniably higher over the short term.
"This is not from forecasting and not from guessing. You know for sure you cannot cover your liabilities by buying government bonds, so why do it?" he explained.
Angele said equities would have to outperform over the long term because there was simply no room for government bonds to improve.
"The margin for error buying government debt is zero. People are putting money in government debt with very low yields and I’m not sure about the sustainability of running money like that," he concluded.
