Corporate bond prices dropped last year as investors switched to super-safe Treasuries. Now, bonds from high-quality companies have yields in the 6-8 percent range. If those yields attract enough investors to push up the prices, high-quality corporate bonds could have total returns over 10 percent in 2009.
Among intermediate-term bond funds holding significant amounts of corporate bonds, Morningstar’s five-star "analyst picks" are:
* Harbor Bond Fund. Its 10-year annualized return of nearly 6 percent puts it in the top 3 percent of all intermediate-term bond funds.
* Vanguard Total Bond Market Index Fund. Its 10-year annualized return of well over 5 percent puts it in the top 10 percent of all intermediate-term bond funds.
These two funds had gains of 3.3 percent and 5.1 percent, respectively, in 2008, while most taxable bond funds lost money.