Opportunity abounds in a mart forsaken by investors. Here’sitting a peek at some encouraging bond plays–from junk to bank loans, high-quality corporates, munis, and emerging markets

By Lewis Braham


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In the nearest five years someone will make a fortune in the durance market. That’s because bonds of almost every streak are extraordinarily of small account, with yields in the hollow digits for in the same state corporate issuers during the time that DirecTV (DTV) and power producer Mirant Americas Generation. But fortunes could even-handed as easily be preoccupied into the bargain the next few years. Bonds are so cheap, after all, inasmuch as of fears the economic mess be disposed generate record downgrades and defaults that adieu investors nursing huge losses.

In the worst confide in exigency since the Great Depression, investors be under the necessity fled to the safety of U.S. Treasuries—although they hardly appear to be a bargain with yields on five-year notes hovering around 1.4% and Washington borrowing hundreds of billions more to shore up the economy. Where are the opportunities? Almost everywhere, if you know how to pursuit. Here is our look at the bonds that hold the principally promise.

HIGH-QUALITY CORPORATES

Once upon a time, bonds issued by blue-chip corporations yielded roughly a modest unit percentage point more than Treasuries. But panic in the credit markets has created unusual bargains, with the yield publish between corporates and Treasuries topping five points. “I can put together a fixed-income portfolio that yields 8% or 9% without a great quantity in the manner of [credit] risk,” boasts Tad Rivelle, co-manager of the Metropolitan West Total Return Fund (MWTRX), which has beaten 88% of peer funds over the past decade. Right now, roughly three-quarters of Rivelle’s fund is invested in AAA-rated bonds issued by companies such as General Electric (GE) and in mortgage-backed bonds from powers that be agencies Fannie Mae (FNM) and Freddie Mac (FRE). The two agencies have long carried an implicit federal guarantee, yet they now yield in excess of 7%. Rivelle also has been dabbling in the “jumbo aboriginal” area—pools of large mortgages made to wealthy borrowers with the highest credit ratings. These currently yield as much as 15%.

If you neglect less mortgage-bond exposure, consider instead a low-cost, high-quality corporate bond play such as the Vanguard Intermediate-Term Investment Grade Fund, what one. currently yields 7.3%.

HIGH-YIELDS

Prior to the credit emergency, Derek Young was leery of junk bonds—lower-grade incorporated instruments—because the yields weren’t enough to offset the greater exposure to harm. But now the co-manager of the Fidelity Strategic Income Fund (FSICX) is adding to his position. “High-yield bonds were yielding only two percentage points more than Treasury bonds in 2007,” he says. “Now they’re yielding 15 percentage points more. So we’ve been looking for opportunities to buy back into the sector.” Today 28% of the permanent fund is in high-yields, including mining company Freeport-McMoran Copper & Gold (FCX) and natural gas producer Chesapeake Energy (CHK).

Original text: http://www.businessweek.com/magazine/content/08_52/b4114048560059.htm?campaign_id=rss_null