Earn 5% — Even If the World Economy Merely “Muddles Through”

Greece’s woes, and now Puerto Rico’s threatened debt default, remind us that the global economy remains delicate — eight long years after the onset of the financial crisis. But are conditions quite as bad as certain shrill commentators seem to think? Over in the bond market, a fierce competition is taking place to see who can paint the direst scenario. On one side are the folks who warn of sharply rising interest rates, which would wreck the prices of Treasuries, municipals and other high-grade bonds.

Where can we, as fixed-income investors, make money in this environment? The best opportunity, I believe, is in lower-grade corporate IOUs — paper rated below “investment grade” but not the junkiest of the junk. Yields here are higher than you can earn on Treasury debt of the same maturity. If the yield spread contracts, you may be able to pocket a capital gain, too (from rising bond prices). In our model portfolio the Pimco Income Fund (PONDX, $1,000 minimum) is well-positioned to take advantage of the environment I foresee. PONDX currently yields 5% based on the past three monthly distributions.

Source: InvestorPlace

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