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To: Dr. Jeff who wrote (205170)	11/15/2002 7:49:53 PM
From: Mark Adams	Respond to of 436258

Odd. From the S&P Outlook dated 11/13/02. Junk Bonds May Be on the Rebound With spreads between high-yield bonds and 10-year Treasuries at historical highs and defaults edging down, investors are being drawn to junk bonds. The stock market’s abysmal performance over the past few years has brought into sharp focus the risks of investing in equities and made investors queasy about that asset class. Meanwhile, what seems to be shaping up as an unprecedented three-year bull market in investment- grade bonds looks too good to continue, given the likelihood that rates will eventually go up, and bond prices down, as the economy improves. In this unsettled environment, some savvy investors are turning to what might seem a counterintuitive solution: high-yield, or junk, bonds. High-yield bonds carry a credit rating below BBB- and have commensurately higher coupons because of their added risk. The best way to invest is through a mutual fund because you get riskreducing diversity that would otherwise cost too much to obtain. Junk bonds have been out of favor for most of the past decade, after a good run in the early 1990s. Thanks in large part to the telecom debacle, defaults have been in the 10% range in the past year, over twice their historical average, according to Margaret Patel, manager of Pioneer High Yield Fund. But defaults have been coming down, to 9.6% in August and 9.2% in September. As the economy recovers, they are expected to trail off further. At the same time, junk bonds are yielding on average about 14%, while the 10-year Treasury is hovering around 4%. That oversized yield helps to dampen volatility. In fact, junk bonds are inherently less risky than stocks because bondholders are in line to be paid back in case of bankruptcy. Stockholders stand to lose their entire investment. “Over the next year probably will be a good period for high-yield bonds,” says Martin Fridson, formerly Merrill Lynch’s high-profile junk bond expert. “You should start to see some recognition of the decline in the default rate by the second half of 2003.” The biggest risk looming over high-yield, as with other economically sensitive asset classes, is a possible war against Iraq, according to Fridson. He says the potential for war should be factored into the market by now, but notes that “after the Iraqi invasion of Kuwait in August [1990], a lot of people thought it was a foregone conclusion that there would be military action against Iraq. Yet there was still some impact [on the markets] when the actual shooting war broke out” the following January. Another significant risk to junk bonds would be a stalled economy or double-dip recession, which is still a possibility. The best time to buy junk is at the end of a recession, when the yields are high and prices low. As the economy strengthens, yields go down because credit ratings improve, and prices go up. The high-yield funds described below have strong long-term track records and are managed by seasoned professionals. The rankings are determined by criteria set by our mutual fund analysts. They are based on risk-adjusted returns vs. the peer group and are assessed every month. .... Reporter Spin?