Although muni and corporate debt must be approached carefully in this climate, there are a few deals to be found in both sectors, says Marilyn Cohen of Bond Smart Investor in this exclusive interview with

Marilyn, you have been worried about interest rates. You wrote a book, Surviving the Bond Bear Market. You have cast out warnings about muni bonds, and you suggest people buy individual bonds instead of bond funds. Can you tell us why, and then tell us what individual bonds you are recommending?

Certainly. I like individual bonds because you can see the light at the end of the tunnel, that tunnel meaning maturity date. So if you buy bonds that have call features or non-call bonds, you know when you buy them—and they stay in business or they have continued to make their interest payments—you know when you are going to get your money back.

Whereas, if you are in a fund, you don’t; it has a constantly-turning-over maturity.

Some of the bonds that we have been buying have been Texas Permanent School Fund bonds, in which these bonds are absolutely pristine in credit quality; there is a big permanent school fund out there that has not only stocks, bonds, and real estate—they have mineral rights.

This kind of bank of securities and investments will make timely interest and principal payments if a school cannot make those timely interest and principal payments to you, the bondholder; so we love PSF guaranteed bonds…they are fabulous.

So any others? Can you give us a couple of others?

A couple of others in the muni space…we like Tennessee. Even though Alaska has a budget deficit, they are working on it without any smoke and mirrors, like some states that we have seen.

We like some of the bonds down in Florida, some of the GARVEE highway bonds, in which the Federal Department of Transportation gives so much money per year to the states in order to keep their highways up, etc. So if you are selective, there are some good buys out there.

Are there great buys? Absolutely not. Don’t let anybody tell you that the muni market is undervalued. It is overvalued—that is why I want to stay in front of the curve, meaning short-term munis seven years in, and sacrifice yield today because I think the nominal yields are going to go up somewhere down the road. If it is not this year, it is going to be next year.

How about other non-munis like US Government, corporate, or things like that?

The US Governments I don’t think have any value.

They don’t have any value at all?

No. I would say after inflation, you have got nothing. But…let’s talk about what’s working.

Wynn Las Vegas (WYNN). I love those bonds. There are two ways to make money in the bond market: you either take interest-rate risk or credit risk. Since I am so bearish on interest rates, I want to take credit risk.

Even though Wynn Las Vegas is a high-yield junk bond, they are a junk bond that has good credit metrics…and as a bondholder, I have the first mortgage rights. So if for any reason they default, we will go in as bondholders and take over the company—which would be doubtful. But that casino is very, very well collateralized.

Only Wynn Las Vegas, so it doesn’t really participate in Macau or some of the other places.

That’s correct, but I think that that is good enough. So there are bonds due in 2017 and 2020. The 2017s are callable bonds; it is a 7 and 7/8ths coupon. The yield to the worst call is about 5% in 2013, and running about almost 6% in 2017.

Their 2020 bonds are callable in 2015, and you get 5.75%; if they last until 2020, which I do not think they will, you can get in excess of 6%. So that’s some real yield—not your ten-year treasury at 3.20. That is nowhere, I think.

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