Junk May Not Be Trash

Kiplinger's Personal Finance suggests that yield-hungry investors may want to put some money into junk bonds now. They're relatively scarce in finance, housing and retail, the current trouble spots.

The yield gap between junk bonds and Treasuries is six percentage points. That's a big enough spread to indicate that the recent rally in junk bonds has more room to run.

Because defaults and downgrades are more common in junk bonds than in other types of bonds, you should use a fund to invest in this category. Yields on junk bond funds may be around 8% now.

It should be noted that in the past when junk bonds yielded six points or more above Treasuries, rallies subsequently narrowed the spread delivering investors gains as well as current income.

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