"The growing tendency is to buy debt because of what it says on the tin rather than because of what's inside it," Mark Tinker, chief strategist at Execution Ltd, says.
The trend continued last week when benchmark eurozone yields hit an all-time low.
Although the pan-European FTSEurofirst300 share index has also reached new 32-month highs, the rise has been slow and cautious.
The index is up almost 60 percent up from its pre-Gulf War low of March 2003, but it is also almost 60 percent below its peak of September 2000.
Investment bank outlooks for the 2005, while positive for the most part, also show that equity strategists have their feet on the ground. They forecast gains of about 5 to 10 percent, even though valuations are far from excessive.
At just under 13 times and 16 times 12-month forward earnings respectively, both the FTSEurofirst 300 and the US S&P 500 are at valuations that are about one fifth below their 10-year average level, said Bobby Rakhit of Factset JCF.
Saul Henry, a strategist at fund manager State Street Global Advisors, reckons European stocks are still attractive despite the gains since March 2003.
"We certainly aren't back to bubble valuations," Henry said.
Contrast that with European fixed income markets, where both government debt and corporate bond prices have broken records due partly to an imbalance in supply and demand.
Institutions, particularly European, have bought debt rather than equity because of tightening global capital adequacy rules and gradual improvements in asset-liability matching.
At the same time debt issuance by European companies (excluding financials) fell 40 percent in 2004 from the previous year's level to 101 billions euros, according to SG.
Spreads on investment grade corporate bonds - the gap in yields between company and sovereign debt - are at record lows, based on the FTSE Euro Corporate Bond index.
High-yield debt can barely be described as such any more. Yields have sunk as fund managers who would normally avoid junk bonds move down the ratings scale to improve profits.
A 200 million euro bond launched by cognac maker Remy Cointreau last month is a case in point. It met with demand of 1.7 billion euros, 40 percent of it outside the regular high-yield market, helping set a new record low coupon for the sector at 5.2 percent.
Booming sales of pay-in-kind notes are also interesting because they are equity dressed as fixed income. Interest is paid only at maturity, and they give the holder a subordinated claim on an issuing firm's assets in the event of default.
Buyers of straight equity appear choosier.
European share offerings and placements hit a post-bubble high of $187 billion last year, according to data from Dealogic.
But that figure is inflated by governments selling stakes in blue-chip firms and masks the axing of several IPOs because of thin demand among investors for potentially volatile new issues. Fund managers buying stocks have mainly bought secure income streams in the form of dividends or capital-returning share buyback programmes. Buybacks worth more than $40 billion have already been announced so far this year.
A substantial minority of fund managers even want firms to sell bonds to fund bigger dividend payments and buybacks. That, while providing some support to equity markets as companies' earnings growth slows, would do little to relieve the tight supply in bonds.
And the more desperate the search for yield becomes and the tighter corporate bond spreads are squeezed, the greater the potential that things could go badly wrong.
Debt strategists recognise the risks but say the credit outlook remains benign due to strong global growth, solid corporate cash-flow, stable credit quality and low default rates.
"There is nothing on the horizon which suggests they are definitely going to suddenly kick out," Gary Jenkins, head of credit research at Deutsche Bank, said.