It has been a wild ride for investors over the last couple of days. All eyes are on stocks and commodities as they get whacked by the meltdown on Wall Street and the government’s bungled attempts to ‘fix’ the situation. The investment-grade corporate bond market, meanwhile, is showing some great value, says Eric Roseman.

This from The Sovereign Society:

Triple-B corporate bonds, a.k.a. the lowest tier of investment-grade debt, now yield more than 7%. In fact, these credit spreads versus Treasury debt sit at their widest in more than a decade.

While investment-grade bonds continue to stumble for the moment, long-term, these gems will offer the best values over the next 12 months as markets eventually stabilize and credit fears subside.

Many non-financial issuers don’t need bank credit to fund operations and don’t suffer from a liquidity crunch. But many financial firms require ongoing credit, especially now, after a 14-month-long credit crisis.

In September alone, corporate bonds have been pummeled. They’re down almost 10% in some cases and posting their single largest monthly decline since 2001.

One of the more popular investment-grade exchange traded funds, LQD (NYSE:LQD), or the iShares iBoxx Investment Grade Corporate ETF, has plunged 11% in September, pushing its effective yield up to 5.6%.

Bigger bargains beckon in closed-end funds.

Many investment-grade closed-end corporate bond funds traded on the NYSE trade at discounts exceeding 12% of net asset value. Their effective yields are now in excess of 8.5%. Some of these funds, however, use leverage to augment returns.

At some point busted credit markets, including investment-grade corporate bonds and convertible bonds, should benefit from liquidity flowing into these markets again.

I would, however, continue to avoid junk bonds since the broader economy is still weakening and many more weak companies are bound to default on payments over the next six months.

You still have time to pick and choose your investment-grade bond options. You don’t have to be the first bottom-fisher. As lending spreads eventually tighten again and other credit indicators begin to normalize later this fall, you can start buying into these bargains.

I’ll keep you posted on credit stress indicators over the next few weeks. Meanwhile, there’s no rush to start buying.

Source: Big Values in Investment-Grade Corporate Bonds