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Could Junk Be Better?
Many fixed income investors will still shrug their shoulders at the missed gains that junk, or more appropriately, high yield bonds have given investors willing to take the risk. You have to wonder why, if the Merrill-Lynch Master II High Yield Index is any indication, that junk was really where "it" was in the past year, didn't more investors jump on the profit wagon. The index returned 30% over the last twelve months. The yield in this category is determined by the difference between Treasuries and the index.

That has all changed in the past year. From a yield of just shy 11% over Treasuries a year ago to just shy 7% last week, all that can be said is, "it is amazing what a year can do". The difference between then and now is value. Where there once was none, the chance of default running too high to lure the conservative investor no matter what the promised returns were, there are better values available.

Supposed you missed those stratospheric 70% returns that C-class bonds, considered the junkiest of the junk group, turned in last year. Suppose your fund manager did the same opting for a more conservative approach. What would change your mind about this group of fixed income offerings? Would the high yield market be more attractive now that it has cleaned up the neighborhood? It should.

With junk bonds still turning in double the rate of the ten year Treasury and the companies that issue these bonds seeming more stable, this might be just the time to start looking. Corporate profits are looking better. Companies are rethinking the balance sheet in the aftermath of several huge financial debacles. And smart investors would take notice of these fundemental changes. Investors should realize that high yield may be a nice place to wait out the slide in the overall bond market.

Order your copy of Building Wealth in a Paycheck-to-Paycheck World by Paul Petillo. It is packed with safe, proven wealth-building strategies that cover all the major components of a balanced financial plan, including: