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How to make money with junk bonds

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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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." CTV Two CTV News CTV News Channel BNN - Business News Network CP24