Avoid Super Junk

Physician's Money Digest, January31 2005, Volume 12, Issue 2


Wall Street is being flooded with junkbonds, many of which have Standard &Poor's CCC rating (ie, just a couplenotches above bankruptcy). As a result,some bond market watchers are predictinga rash of Chapter 11 filings 2 or 3years out. Despite the influx of high-yieldbonds, however, the JP Morgan high-yieldindex is at 7.14%, near a recordlow, and the spread between junk bondyields and US Treasuries stands at just3.4%, the lowest level since hitting itspeak 8 years ago. Some intrepidfinancial gurus propose that a better strategyfor betting on junk bond issuers is tobuy the stock instead of the bonds, especiallyin companies that are aggressivelypaying down debt.