Bond Market -- Corporates

Corporates experienced a powerful bull market from 1982 - 2005,
with Moody's Baa bond yields falling from the whopping 17 - 18%
yield range down to 5.5% in early 2005. It was difficult to capture
the full majesty of this run as companies called their higher coupons
as fast as they could, and investors, who prefer funds, were often
stuck with shorter maturity structures than they deserved. Only
the big players with expertise to assess individual issues got the full
measure.

Yield chasing by liquid players was intense over the late - 2000 to
mid-2005 period. Corporates then entered a bear phase as yields
rose to compensate for higher inflation. The bear phase became acute
once the recession took hold in 2008, and corporates were drubbed
in the Sep. - Dec. ' 08 panic period, as players moved into safer haven
Treasuries in droves even as inflation eased. In spectacular fashion,
the Bloomberg junk index shot up from 10.50% to over 24% yields
before recently returning to near 12.50%.

Like Treasuries, high quality corporates have been poor performers
since Mar. of this year, as players opted to take on more risk in
equities and lower quality bonds.

High quality corporates, which traded as low as 5.2% in 2005, are now
a far more reasonable 7.00% and Baa/BBBs are at 8.20 - 8.80%. So
there are solid corporates out there that are now more attractive than
Treasuries and spreads can be expected to narrow further in even a
modest economic expansion. Junk bonds are much trickier because
the economy has weakened enough to increase default risk measurably.
My cut off for junk is 10%. I'll take a look at the market when yields are
above 10%.

I have never been that comfortable trying to do valuation on corporates.
I would say that in a 3.0 - 3.5% inflation environment, that high grade
corporates would be reasonably priced above 7.0% when maturities
exceed 7 years. I strongly prefer individual issues because with careful
shopping and some basic financial analysis, one can better tailor a
portfolio to suit one's needs than can be done using funds.