High-yield bonds 'fools paradise'

Robert Rodriguez, chief executive officer of First Pacific Advisors, today said he wouldn’t touch high-yield bonds with “a 500- or a 1,000-foot pole.” “It’s a fool’s paradise,” Mr. Rodriguez said during the Morningstar Investment Conference 2007. “I feel fairly confident, or should I say highly confident, that we will witness another period of time where the spreads in high yield will probably end up setting new all-time high records.” That could be in excess of 1,100 basis points over Treasuries, he said. “With what is going on in private equity and the leveraging up there it’s setting up the next catastrophe,” said Mr. Rodriguez, president and chief investment officer of FPA Capital a small/mid-cap value fund, and FPA New Income, an intermediate bond fund. What’s he buying on the equity side? “I’m very aggressively buying a small over-the-counter stock, it’s a symbol called CASH,” quipped Mr. Rodriguez, who has 41% of FPA Capital in cash. Los Angeles-based First Pacific Advisors manages about $11 billion in assets.