(FORTUNE Magazine) – Even though the stock market stole the show this spring, with Standard & Poor's 500-stock index appreciating 15% since the beginning of the year, Peter Nadosy says the rest of 1991 will belong to bonds. Nadosy, 47, stewards $9 billion of fixed-income securities as president of Morgan Stanley Asset Management. He was born in Hungary and fled to America with his parents after Khrushchev crushed the 1956 revolution. A soft-spoken, conservative investor who usually shuns bonds with maturities longer than ten years, he manages a portfolio whose return in the past ten years puts him in the top 10% of fixed- income managers. During the first quarter of this year, it produced an annualized return of 12%. Like many on Wall Street, Nadosy expects the U.S. economy to begin a weak recovery this summer and thinks interest rates and inflation will stay low. (Fortune's economists, slightly more pessimistic, expect inflation and interest rates to rise.) Fortune's Andrew Serwer got Nadosy's fix on the fixed-income market.

Do you really think bonds will beat up on stocks? I think from now until the end of the year you can make 10% on bonds. I'm not so sure you can say that about stocks.

You think interest rates are headed down. Does that mean that 30-year Treasuries are the place to be? I like Treasuries, but I'm not willing to commit to long bonds yet. They are yielding around 8.3%; even if the economy turns up this summer, the yield could fall to 7.5% during the next 12 months. The reason I'm not buying now is that I need more indications that inflation is under control. The latest consumer price index numbers were encouraging, but I'd like another month's data and also some evidence of positive, tame GNP growth. Uncertainty about inflation is why short rates have fallen so much more than long rates. The Federal Reserve has driven short rates down, but the market is saying, ''You must show that you are controlling inflation before we will let long rates fall further.'' For now I own seven-year Treasuries. They yield about 8% and don't carry as much price risk as longer-term bonds.

Anything tempting in corporates? There are interesting issues in industries that are somewhat out of favor. For example, financial services companies like American Express and Merrill Lynch have three-year to seven-year issues yielding in the mid to high 8% range that look good. I also like the new RJR 10.5% note.

But that's a junk bond! True, but the issue is big and liquid, and the company is getting back on its feet. There are several other junk bond issues that look okay -- higher- quality junk that yields three to four percentage points more than Treasuries. The key to junk bonds is not to be tempted by stuff that yields six or seven percentage points more. I like two grocery companies: Vons, a California chain that recently remodeled its stores, and Kroger, whose sales and margins are both up. Von's recently yielded 12.2%, and Kroger 11.6%. I also like two cable TV companies, Turner Broadcasting Systems, which recently yielded 11.8%, and Continental Cablevision, which yielded 13%.

What about municipal bonds? If you're asking what I'd suggest for an individual investor, I'd recommend mortgage-backed bonds instead. I like Ginnie Maes with 9.5% coupons. Lately they've been selling a little over par, so the yields are down to around 9%. The interest is taxable, of course, but a top-bracket investor's return after federal taxes is still 6%, about equal to the yield on a high-quality muni. And the bond is government-guaranteed. The risk is that interest rates will drop so far that homeowners prepay their mortgages and Ginnie Mae returns your principal before the bond matures. But that risk is not too great. Prepayment usually happens when rates fall at least a full percentage point; we see them dropping less.

Is there some reason to stay away from municipals? Munis are a tough game right now. The yields look good compared with Treasury bonds, but we've never had so many states and cities in such a crunch. The highest-quality issues, from states like Maryland and Georgia, yield about 6.2%. California bonds yield 6.4%, but the state is doing so much financing that the value of its existing bonds could drop. As far as New York is concerned, I'd rather own ten-year New York State bonds, which yield 6.6%, than New York City bonds, which yield closer to 7%. Both the state and the city have big budget problems, but the state's are less severe. I would avoid junk munis, which I define as any municipal bond offering a yield equal to or higher than that of a Treasury of comparable maturity. They are illiquid and usually turn out to be disasters.

Does the strong dollar ruin the case for overseas bonds? The dollar may be getting ahead of itself. It is up more than 17% vs. the mark in the past three months, and I think it could easily turn around. Some foreign markets already look good, with high interest rates and high rates of return after inflation. When the dollar falls, they'll look even better.

Care to name a few? France. Intermediate-term bond rates there are close to 9%, and inflation is about 2.5%, compared with 7.5% and 4%-plus inflation in the U.S. The French government has made great progress getting the economy in order. Investing in Spanish bonds is also a good idea. They yield 12.5%, and inflation is 6%. For retail investors a good international bond fund may be the right place to put some of their money this year. Look for funds with the best long-term records in the Lipper Analytical Services mutual fund survey.