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How to make money with junk bonds

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Extended Coverage
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BNN speaks with Barry Allan, president, CEO and CIO, Marret Asset Management, about the search for yield among high-yield bonds and dividend-paying equities.
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BNN talkes to Craig Basinger, Chief Investment Officer, Macquarie Private Wealth, about the search for yield and how much risk investors are willing to expose themselves to in order to get better returns.

Rising interest rates won't have a significant impact on high-yield bonds, so long as they don't go up too dramatically, according to junk bond investor and author Robert Levine.

"If rates go up a lot, then it is a different game," Levine, author of How to Make Money with Junk Bonds tells BNN.

"But we don't expect rates to go up a lot. The interest rates are low for a reason. The economy is meandering. It's not expected to recover any time soon," the former CEO of Nomura Corporate Research & Asset Management says.

Levine says it's easier to pick a junk bond over a stock since all you have to do is analyze the coupon repayment of principle.

Euphemistically known as junk bonds, these high-yield bonds are corporate fixed-income instruments below investment grade, as ranked by the bond ratings services.

Levine estimates the junk bond market to be worth more than $1 trillion, with more than 1,000 issuers.

Issuers include some of North America's best-known companies, such as Freeport McMoRan, Avis Car Rental, and Clear Channel Communications.

Levine says he uses what's known as "Strong Horse" investing to pick high-yielding corporate bonds. He looks at trends in earnings, the company's revenue, and how many times it can cover its interest, among other things.

"I like large companies, low-cost producers," he says. "It's not really hard to do that if you look at the company's financials."

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