The best way to go about it is through a high-yield mutual fund or ETF.
"I think the heroic turnaround is somewhat overstated, " says George Lynch, a high-yield bond manager for Invesco.
Computer models are written for everything from determining early pre-payments on mortgages to the probability that a high-yield bond will default.
They are typically short-term investments that banks market as a high-yield alternative to bank deposit rates, which are kept low by the government.
But investors aren't being adequately compensated for the risks they are taking, says Martin Fridson, CEO of FridsonVision, a high-yield-bond research shop.
Default rates are on the decline, and NTHEX, although it is a high-yield fund, maintains a fairly conservative investment posture (underweighting telecom debt) and keeps its maturities short.
Since longer-maturity bonds offers higher yield in the current market, this kind of debt is mostly purchased by mutual funds, which want to offer a high-yield product to investors.
According to testimony, Enron's ex-Chairman Lay and ex-Chief Executive Skilling had repeatedly portrayed the division as a steady source of predictable growth--as opposed to a high-yield and potentially risky business.
There are people who will reach for yield either by going to a high-yield bond fund or maybe a long-term bond, but those, for me, pose a little bit too much risk.
Coupled with that, I do want to say that what I feel is one of the best investments out there for anybody who wants to play the equity markets is actually derivative equities, and that would be a high-yield or junk bond.
At one time, you could confidently place any money you might need within one year in a high-yield savings account and be relatively confident that your money could buy at least as much a year in the future than it could buy the day you deposited your funds.
Consider a high yield exchange-traded fund like the Barclays High Yield Bond SPDRS ETF (NYSE: JNK).
Appel points out that the rally has favored large-cap growth stocks and has also given a boost to high-yield corporate bonds.
But in my discussions with Matt Philo, head of MacKay Shields High Yield Group and a longtime investor in both high-yield bonds and loans, we concluded that generalizing is often difficult to do in the investment business.
As YCharts recently explained, Intel offers a utility-like high yield with a dividend growth history that utilities can only dream of.
There is a good chance high-yield munis are going to get riskier as the sluggish U.S. economy takes its toll on municipal finances, RBC's Mr. Mauro says.
That is a sign that high-yield bonds look expensive, at least relative to stocks, says Edward Marrinan, head of macro credit strategy at RBS Securities in Stamford, Conn.
Distressed debt investors will have to adapt to a surging equity market and a bubble in high-yield loan markets, finding themselves pushed down the capital structure in search for yield.
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"There's been a general flight to quality, so very few people want to take a chance on high-yield bonds right now, " said Cecilia L. Gondor, executive vice president of Thomas J.
The resurrection in stocks since March of 2009 corresponded with a momentous junk-bond rally, too, prompting investors take a more skeptical view of high-yield corporate debt.
But a proper rescheduling would be better than the current situation, where as much as a quarter of trading in emerging-market bonds is accounted for by opportunistic high-yield funds, betting on a pay-out in the courts.
Money has been flowing at a dramatic pace into high-yield junk bonds, commodities, and gold.
When I spoke of the soundness and integrity of capital markets, I was referring to a lot more than high-yield bonds.
So, I think there is a good opportunity in high-yield bonds.
The key is to tiptoe carefully into a diversified group of high-yield names with specific maturities whose balance sheets are good and whose price moves, based on interest rate fluctuations (called duration), will be muted.
Typically mutual funds is where we are looking at quite substantially right now for really one reason, and those tend to trend better with a lot less risk, so you know you can have market-like rate of return on high-yield-bond mutual funds with historically a third of the downside risk of the markets.
Still, only a small amount of Asian high-yield bonds is available to U.S. buyers.
As with dividend paying stocks, there is often a trade-off between high current yield and prospects for growth.
So many firms are refinancing that the point at which there is likely to be a potentially worrying spike in high-yield debt falling due has receded from next year to 2012, says Martin Fridson of Fridson Advisers.
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