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The Bond Bible - 


Tess Vigeland: So if you don't want to invest in the housing market right now, and you've been a tad reluctant to put more money into a falling stock market, what else? How about corporate bonds? Apparently, they're the next hot . . . old thing.

Marilyn Cohen joins us. She's a bond trader and author of "The Bond Bible."Welcome back to the program.

Marilyn Cohen: Thank you, my pleasure.

Vigeland: So what's happening here? Folks not terribly interested in the stock market right now, but very interested in corporate debt. Why?

Cohen: Well, corporate debt has been shunned during this repricing the last two months, meaning that prices went down and yields went up dramatically. And so I think people just got a little bit weary of being whipped around in the equity market and have said you know what, now that rates are up a little bit, or quite a bit in corporate bonds, I think it's time to allocate some of my assets to that asset class as opposed to keeping all of it in the equity market all the time.

Vigeland: So at this point, you're getting more for your money, and you don't have perhaps as much risk as if you were in the stock market right now?

Cohen: Absolutely. Absolutely. And the bond market's repricing has made it, you know, significantly more attractive to investors who wanted nothing to do with it last year at this time.

Vigeland: But it seems like what we've been hearing is that corporate debt is bad now. Nobody wants to get into this credit market, it's a mess. So why go in? Is it really just bargain-hunting?

Cohen: Yes, it's bargain-hunting. It's looking for opportunities when everybody else is just, you know, saying "Get me the heck out of here, I only want treasure."

Vigeland: Right.

Cohen: And as a portfolio manager, you know, that's my job. That's what I'm paid to do. I mean, I sat for almost all of last year — and a good portion of this year — mostly in government agencies. Fannie Mae, Freddie Mac, federal home loan bank bonds. So I was, you know, very risk-averse. Now that the spreads are widened and it looks like, temporarily at least, some of the private-equity firms are on the sidelines, you've got a better deal going forward.

Vigeland: What else are you buying?

Cohen: Well I, you know, I'm looking at good-quality credit. Like Sprint, you know, names that are somewhat every day names that aren't too esoteric that hopefully are too big to be taken over by another company. I would take a look, if you want to sift through some of the rubble, at Costco Wholesale, has some bonds due in 2012. I think Xerox is a good name and that bond has come back from the dead.

Vigeland: Does it surprise you all that corporate debt is all of a sudden the darling?

Cohen: Well, it's . . . no, it's not surprising, because everything that gets overdone in the market then becomes hated and despised. And that's when you want to buy it. But you know . . .

Vigeland: Wait, are you saying we're all extremists?

Cohen: Yes, absolutely! Investors are always extreme. Look at the mania we saw in the equity market. Well, you know, if you thought that was bad, you should have been sitting in my seat, because the mania in the bond market was many times worse than that.

Vigeland: All right. Marilyn Cohen is the president of Envision Capital here in Los Angeles. Thanks so much for your time today.

Cohen: Thank you.

Follow Tess Vigeland at @tessvigeland