Transcripts

"Money File"-Is Now Bond Season?

SUSIE GHARIB: In the "money file" tonight, in the midst of the credit crunch. Is it a good time to invest in bonds? Here with some answers is Gail Marks Jarvis, personal finance columnist at the "Chicago Tribune."

GAIL MARKS JARVIS, CHICAGO TRIBUNE: When the stock market acts as spooky as it has lately, investors often find comfort in bonds, but not this time. The stress in the stock market is all about credit or lending and the fear that most homeowners and businesses will not get repaid. Since bonds are IOUs for loans, that puts people who have invested in bonds in the center of the storm, especially if they have risky corporate bands or high yield junk bonds.

In July, the average high yield bond fund lost more than the stock market. Investors are frightened by the reckless lending practices of the last few years. Financially stressed homeowners already are drowning in debt and the bond plunged unnerving investors world wide. The next shoe to drop could be corporate bonds, especially for companies overloaded with leverage-borrowed debt.

Corporate bonds as a group have been getting junkier and junkier. More than half have considered speculative. Twenty percent of junk bonds are rated triple-C which means they stand a strong chance of defaulting on payments to bonds investors. More than $600 billion in leveraged loans will need to be refinanced during the next few years. If you buy bonds to be safe, be cautious. You might earn nine percent in junk bonds, but safe U.S. Treasury bonds, CDs and money market funds let you earn close to 5 percent and sleep soundly. This is Gail Marks Jarvis.