A former Morgan Stanley strategist who sounded an early alarm about the financial crisis, Gregory Peters says he still favors high-quality junk bonds.

Gregory Peters, a senior investment officer at Prudential Fixed Income, said Monday he favors higher-quality high-yield junk bonds even after the sector's rally.

Peters, who helps manage more than $621 billion of assets, said another buying opportunity in fixed-income securities could come later this summer.

"The powerful move has been around the beaten-up names. The higher-quality types of segments within high-yield that has not rallied that much has some room to run," Peters said in a telephone interview. "I still feel comfortable on how we are allocated."

Peters, the former Morgan Stanley chief global asset strategist who sounded an early alarm about the financial crisis, said Prudential "was not bullish on the energy piece of the high-yield market," which has rallied strongly.

"You obviously regret the performance you missed, but a lot of these names are struggling and will continue to struggle," Peters said. He also said that he believes there will be another buying opportunity in the credit markets, so "I am not adding. I am kind of watching and moving stuff around, on the margin."

Peters said he thinks the Treasury yield curve is too steep and that there is too much risk premium in the curve. "A proactive Fed should translate into a curve flattener, if you believe history. I think this is still the case in this environment.

"In a hiking cycle, the curves flatten," Peters said. "So while the curve has flattened a great deal already, we still think it has ample room to flatten more."

When the slope of the yield curve flattens, that means short-term rates are rising faster than longer-bond yields, encouraging investors to sell assets with shorter-term maturities.

Peters warned in November 2007 that there was a greater than 50 percent chance that mortgage losses would cause a systemic shock that would bring the financial system to a "grinding halt."