Housing markets have bottomed in peripheral Europe making this a good time to own Spanish residential mortgage backed securities, said Gary Herbert, portfolio manager for the Legg Mason Brandywine Alternative Credit Fund. Herbert is also bullish on mortgage-backed bonds from Greece and Portugal, saying that unemployment is peaking in those formerly hard-hit areas and the ECB's easy monetary policies will quicken the pace of growth. On the other hand, he said U.S. corporate bonds are overvalued because they are pricing in too much good news. Finally, Herbert said high yield is fairly valued, and not in bubble territory like many analysts believe.

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