Fund investors responded to this change in market leadership in the final quarter of the year. Morningstar analysis shows that equity fund-flows bounced back during the last three months of 2012 in a year that saw bond funds attract 10 times the inflows than was captured between 2007 to 2011.

Chris Iggo, chief investment officer at AXA Investment Management, states: “I have lost count of how many references in recent weeks there have been to the ‘Great Rotation’. This is an expectation that investors will start – or have started – to make significant asset allocation shifts out of ‘over-priced’ fixed income into ‘cheap’ equities.”

He adds: “The spin of the great rotation is flawed if it postulates that equities can only go up further if there is a bear market in bonds.”

While equities may outperform in 2013, there are areas of the fixed income market that will continue to deliver, he says. Index-linked bonds should do well if there is a “reflation of the world economy”.

“One of my favourite charts plots the high yield bond credit spread against the break-even inflation spread,” Mr Iggo explains. “There is a high correlation. If high-yield spreads (or credit in general) narrow then break-even spreads widen (higher expectations of inflation).

“Both the Federal Reserve and the Bank of England have signalled a more relaxed stance on inflation while they continue to pursue non-conventional monetary policy, which limits the downside on break-even inflation rates at this time.”

Data suggests that US 10-year maturity government bonds are currently yielding 1.84 per cent after dropping to as low as 1.6 per cent in December. UK and German yields have followed a similar pattern.

Johan Jooste, chief market strategist at Merrill Lynch Wealth Management EMEA, warns that core government bonds will remain under pressure “in the face of a market that appears at times almost obstinately risk-seeking”.

Data from the firm suggests credit bonds are the beneficiaries of “an unrelenting flow of new investor money”. Investors are turning to leveraged loans and local currency emerging market debt.

“The case for the former is quite clear – loans have no interest rate risk, and even though they carry credit risk, the market is currently taking a very sanguine view of such risk,” Mr Jooste says. “Emerging market credit runs on an entirely different set of fundamentals compared to developed market bonds, hence offering some diversification in fixed income portfolios.

“In addition, the local currency exposure is luring some investors who favour a bias away from US dollar exposure.”

So while rumours of a bond bubble – or at least talk of it being time to switch into equities – intensify, investors shouldn’t completely write-off the fixed income market. With appropriate research, pockets of value can certainly be found.

Jenny Lowe is features editor at Investment Adviser