Some novice investors are salivating at securities, closed-end funds, and exchange traded funds (ETFs) that track below-investment grade bonds for good reason.

High-yielding corporate debt has gotten to levels that are making it attractive and corporate defaults are headed higher.  The firms that survive the next wave of defaults should generate returns that outweigh the zeroes, states Toby Shute of Motley Fool Champion Funds.

The amount of debt that is listed on stock exchanges and traded just like its stock is plentiful. In general, these notes are traded in $25 denominations, but with current market conditions some can be picked up at a tremendous discount.

General Motors (GM) has exchange-traded debt priced at around $3, Comcast (CCS) has a note trading below 80% of par and CBS (CBS) has two issues trading around $0.50 on the dollar.

But for those not interested in individual securities, a more convenient way to grab a diversified basket of distressed debt is to take a look at the following ETFs:

iShares iBoxx $High Yield Corporate Debt (HYG): down 18% in 2008; 11.2% yield

SPDR Lehman High Yield Bond (JNK): down 25.6% in 2008; 14.2% yield

As a caveat, though, investing in junk bonds is risky (those high yields don’t come without a price, after all). Be careful and make sure you can stomach the risk.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.