Credit conditions have been steadily improving for companies, particularly those considered higher risk. This is good news for investors in so-called junk bonds, says Kleintop, who calls the so-called high-yield bonds his “favorite asset class.”
There are risks associated with the companies, agrees Kleintop. “There is the risk they will burn through their cash or use it for acquisitions and not make debt payments,” he says. “But you have to expect their credit quality will improve in 2011.”
Kleintop anticipates a third good year for the bonds in large part because they offer investors yields of 7 percent to 8 percent – a significant premium above investment-grade bonds, cushioning any losses if interest rates go up.