NEW YORK (TheStreet) -- Sorry Uncle Sam, but right now corporate bonds are a much better buy than your Treasuries, says Kathleen Gaffney, co-manager of the Loomis Sayles Bond Fund (LSBDX - Get Report).

The $19.7 billion fund, which garners four stars from Morningstar ( MORN - Get Report), is up 16.2% over the past year, better than three-quarters of its rivals. Over the past five years, the fund has returned just under 8% annually, better than 97% of its peers.

Welcome to TheStreet.com's Fund Manager Five Spot, in which America's top mutual fund managers give their best stock picks and views on the market in a five-question format.

Would you rather own corporate bonds or U.S. Treasuries right now?

Gaffney: That's an easy one. Corporate bonds for sure. You are able to pick up additional yield from very low Treasury rates. And when you look at the balance sheets, they are in very good shape, not only in the investment-grade market but in the high-yield market as well.

One issue that you like quite a bit is Ford (F - Get Report). Why do you like the automaker's bonds?

Gaffney: Ford is a real survivor. We saw them on the brink of bankruptcy. They made it through and now they are gaining market share. They have executed perfectly, and that for us has been a great story from owning the bonds to eventually owning the convertible preferred. So as the story continued to improve, we moved down in the capital structure and now we have the potential to capture some equity upside.

BP (BP - Get Report) has certainly been a controversial name. Why do you want to own the bonds?

Gaffney: We own the bonds because we are looking to pick up some additional yield in good credits where there might be some uncertainty or taint in the market, but on the bottom line they are solid from a cash-flow standpoint. A lot of the news has died down and BP has recently tapped the new issue market. It came at levels where we thought it was an attractive entry point.

One convertible name you own is Intel (INTC - Get Report). The chip makers have been down. Why do you like this particular convertible bond?

Gaffney: We like the convert for a long-term play. When you think about the current environment, which is low growth and very sluggish, then the companies that are going to do well are leaders in their industry. That's Intel. They pay a nice dividend. And while we can't own the equity, by owning the convert we pick up some additional yield relative to Treasuries -- plus you have that equity upside. When I think about who is going to be at the top of the heap over the next few years, Intel comes to mind.

More well-known companies are initiating or raising their dividends. Are blue chip stocks becoming competitive with bonds right now?

Gaffney: Equities are starting to look attractive, particularly the large-cap companies that are paying dividends. When compared with Treasuries, I think you have a pretty attractive entry point. But since I am constrained, when I can find a way into the equity market, convertibles are looking very attractive, so we have been increasing our exposure there.

-- Reported by Gregg Greenberg in New York.

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