NEW YORK ( TheStreet) -- Has the jump in Treasury yields crimped the high yield market? Fred Eckert, CEO of Phoenix Star Capital, told TheStreet's Gregg Greenberg what he would do with municipal bonds.
After the yield in 10-year Treasury notes went screaming higher, it caused immense selling pressure in other markets, mainly in high yield bonds and stocks.
However, Eckert said that he was very encouraged by June's nonfarm payroll report that was released Friday. It showed the economy has some legs to it, which is very good for high yielding markets.
He added that he didn't think the default rate would get any worse than it is now, and will probably stay close to 3%, which is quite acceptable. Because of tightened bank lending, coupled with a stronger economy, Eckert said he expects to see more debt issued in the municipal bond market going forward.Essentially there are two kinds of municipal bonds: general obligation bonds and project bonds. While investors tend to prefer the general obligation bonds because they appear safer, project bonds will likely provide more value going forward. This is because many cities' credit ratings continue to drop. He added that a nice arbitrage situation exists where investors could look to go long the project bonds and short the general obligation bonds. -- Written by Bret Kenwell in Petoskey, Mich. Follow @BretKenwell