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Corporate Bonds With Big, Solid Yields


In an era where everyone is chasing yield, corporate bonds are a great place to look for safety and total return.


Gregg Early: I'm here with Chris Heffeman, Director of Sales at SumRidge Partners. Chris, there continues to be a hunt for yield out there with pretty much everyone, including individual investors and pension funds and virtually everyone else.

You've been researching some of the fixed-income securities that are still left that have some decent yields and have yet to been bid up to the sky. Could you talk about some of your research and what you've discovered?

Chris Heffeman: Sure. As you mentioned, people all across the world are looking for any kind of incremental yield they can find. And 2012, much like the last few years, has been extremely positive for risk assets.

With that being said, the credit markets throughout 2012 are up anywhere from 10% to 15% on average between investment-grade and high-yield corporate bonds. Yields are at all-time lows, and dollar prices are at all time highs; plus there are certain pockets of the fixed-income markets where you can still get 6% to 10%.

Now, in a normalized world, years and years ago, these types of securities would probably have yielded 200 to 300 basis points more than they are yielding right now. But again, with the world that we're living in, there are certain names that are yielding 6%, 8%, 10%, 12%.

Some of the coal and steel names are yielding 8% to 10% or higher. There's certain BBB investment-grade credits, such as the Telecom Italias (NYSE:TI) and Telefonicas (NYSE:TEF) of the world, the telecommunication companies over in Europe, that have strong balance sheets, but again are kind of caught up in the mess of the European headlines. They're yielding north of 7%.

Also, the steel names that I mentioned, like ArcelorMittal (NYSE:MT) -- the largest steelmaker in the world, yielding about 8% right now -- and the retailers. Most people are familiar with JCPenney (NYSE:JCP), and JCPenney debt yields 8%.

So, if you're familiar with the company or an industry-every company has its positives and negatives-and you're positive on the stocks, certainly anything in the bond world that's yielding 6%, 8%, 10%, 12%, you might want to take a look at as well.

Gregg Early: Those are significant yields, especially when a lot of people are still looking at stocks and finding 4% or 5% yields, and Treasuries are no place to go.

Now, as far as some of the companies that you're talking about, it sounds like you're talking about some beat-up sectors and regions. Are these long-term plays? Do you see these as sort of total return plays, or are these just to capture the yield for a few quarters or a year or so and then move out once they start to correct?

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No positions in stocks mentioned.
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