RE: Risk/Reward vol.4 THIS IS NOT ADVICE.  THIS IS A PPERSONAL REFLECTION.  RELY ON NOTHING STATED HEREIN Sent: Monday, July 05, 2010 1:43 PM

This past weekend, I have been studying high yield (f/k/a junk) bonds.  I have garnered a new appreciation for them, all of which began when I purused a compendium of non financial issuers.   Revelation 1:  Why would I hesitate to buy the bonds of a company that touts a solid, substantial dividend history?  Bond payments precede dividends every day, all day.  Accordingly, I am seriously considering my next foray into FTR to be via its Ba2/BB (high junk) senior notes due '13 or '14 which have a YTW (yield to earliest redemption-or worst) of up to 7.48%.  Compare this to the 5 year (2015) composite yield on A rated bonds of 3.46%--- better than a DOUBLE.  See also the bonds of LINE and PAA.  NOTE:  The conventional wisdom of keeping one's ladder short, say no more than 6 years should hold true even for junk during these historically low yielding days.  Does anyone have a contrary view?   Revelation 2:  Why not buy the subordinated debt of companies with higher rated senior debt?  For example, MGM Mirage is rated B1/B on its senior debt but Caa1/CCC+ in is sub debt. It's 2/11 debt pays 8.13% YTW and 10.92% for 12/11 maturity.  See also the sub debt of HCA.  Is it not a good bet that a company with a good senior debt rating would not want to jeopardize that by defaulting on its junior debt?   Revelation 3:  Why not buy Ford Credit bonds?  I know, it's arguably is a financial company, but its business is underwriting auto loans, something it has done without default for decades.  Rated Ba3/B-  the paper is plentiful and its yield at 5 years is 7.7% YTW, with aloquat step downs in earlier years.   Revelation 4:  Why not buy the debt of companies whose common I would otherwise buy but for the lack of a good dividend?  Chesapeake Energy, the most advanced natural gas company in the world, is a perfect example.  Rated Ba3/BB, its 5 year debt has YTW of 6.81%.   I have much more work to do before pulling the trigger, but high yield bonds, laddered over a short duration seem a good play and can definitely play a role in my effort to build a dynamic, diversified portfolio engineered to produce a blended return of 6% even under current conditions (which I believe will prevail for several years).