Investment grade spreads have shot to historic highs of more than 250 basis points over the past twelve months, delegates at the Russell Investment Summit heard yesterday.

This reflected the worst risk-taking environment in the 35-year history of modern bond markets, according to Western Asset Management client services manager David Frazer.

Overselling across the whole credit market has created potential buying opportunities for those prepared to hold selective assets long-term, he said.

For the first time since 2000, all non-government sectors are simultaneously underperforming risk-free Treasury bonds.

The result is a huge supply-demand imbalance that has flooded unloved debt securities onto the market at bargain basement prices, Frazer said.

The art is to unearth which assets are cheap for a reason, and those that have been marked down purely because of the breakdown in the system, he said.

On the other hand, Credit Suisse Asset Management (CSAM) is looking at opportunities in Australian residential mortgage backed securities, which are being offloaded by global players because of liquidity problems.

"Australian mortgage backed securities have been sold off along with everything else just because of the big problems with US MBSs," CSAM investment manager Victor Rodriguez said.

Further short-term volatility is likely, as further tranches of securities are released on to the market, he said.

"But if you are able to hold that paper to maturity, you are currently able to get these things at 1.5-2 per cent above the bank-bill rate."