Invesco Perpetual’s co-head of fixed income, Paul Read, has told investors now is the time to be bullish on bank debt in the UK, US and Europe, with valuations at three-year lows despite huge improvements in balance sheets.

Read, who along with colleague Paul Causer runs portfolios including the 5.3bn Corporate Bond fund, 299m Tactical Bond fund, and the 3bn Monthly Income Plus fund, has seen performance plunge across the range in the short term having taken a bet on bank debt.

However, Read said he expects the positions to come good over the next three years, as investors reward banks for the way they have repaired balance sheets.

We are bullish from a fixed income point of view on a lot of the big northern European banks, the big US banks, and obviously the big UK banks, he said.

The sector has improved a lot from where it was in 2008 and 2009. There has been a lot of deleveraging, so the average big European banks have come down from often 30 times leverage to 20 times.

He said the likelihood of impairments at banks the funds hold such as Santander, Barclays, Lloyds, Bank of America and Commerzbank is very, very low, adding he sees extreme valuation opportunities in the space.

The duos stance has hurt performance so far, with Read revealing the Tactical Bond fund gave back a years worth of gains in just three months in Q3.

Performance has been difficult, he said.

We have had allocations to high yield which has been hurt in the third quarter. We have had an allocation to financials which has also been hurt.

The Tactical fund is down 13.5% in the past three months, compared to the Strategic Bond sector average loss of 2.5%. The Monthly Income Plus fund is down 9.7%, while the Corporate Bond fund has lost 7.2%, compared to the Corporate Bond sector average loss of just 0.8%.

However, Read said from here there is a tremendous amount of value in the funds holdings, and he urged investors not to take risk off the table.

I would not be trying to de-risk portfolios in this market environment when there is tremendous value in bank capital, he added.

Sticking with his contrarian stance, Read said the team at Invesco Perpetual is also looking buy the debt of peripheral European countries.

There is value in Italian, Spanish and French government bonds and creeping up, as well, people should be aware the Irish government bond market has been rallying quite strongly for the last few months, as they have been doing what they said they would do and those spreads have come in a lot, he said.

It is not big area of exposure for us at the moment but it is one to watch; the market rewards good behaviour, so there are a number of areas where we see a lot of value now and that is what we continue to build into portfolios.

On the eurozone crisis, Read expects there to be a resolution, and is convinced the euro would not break up.

I definitely do not think the euro breaks up. The cost of a break-up for north and south Europe is enormous.

He also warned investors not to join in the rush to invest in gilts and treasuries with yields at record lows.

He said the unnatural situation of record low yields could continue for two or three more years, with more QE just announce in the UK and Operation Twist in the US keeping longer-term yields lower, but added with yields below the rate of inflation it is the wrong move for investors.

These are almost certainly going to be bad investments.

As an investment case, in real terms you are almost certainly locking into negative real returns, so you need to be careful about duration, he said.