The takeover rumors swirling around KeyCorp, whose stock has fallen about 20% this year, is music to the ears of investors who hold the banking company's bonds.

The spread between KeyCorp bond yields and treasury yields has been stable since the Cleveland company announced a restructuring plan including up to 3,000 layoffs and the sale of its credit card portfolio. But the bonds, which trade at a wider spread than those of its peers, could prove to be a bargain, especially if a takeover materializes, says Allerton P. Smith, a bond analyst at Donaldson, Lufkin & Jenrette.

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