Basel-based Bank Sarasin, which manages E2 billion in global fixed income, will continue to reduce its positions in U.S. automakers. Stephan Aschmann, asset manager, says Ford Motor Co. is on his list to cut back, because it is most likely to react badly to market volatility. Aschmann may prune his position in Ford's 5 5/8% of '04, which has tightened in recently. If that bond goes below swaps plus 50 basis points, he says he will think about selling. The bond is currently trading at swaps plus 74.4.
Sarasin has already reduced its allocation to General Motors, selling its 5 3/4% of '06. Aschmann sold this position, which had the additional affect of bringing Sarasin to a neutral weighting in the triple-B sector versus its benchmark the Salomon Smith Barney euro big index. "The triple-B area has tightened too much and we are not too bullish on corporates anymore," Aschmann says of the decision to go to neutral versus the index.
However, Sarasin did not go to an underweight position for triple-Bs, because the economy should pick up and those bonds should do fine and maybe even tighten a little more. Aschmann says for the most part economic good news and debt restructurings are already priced in, but any threat to the recovery could send spreads outwards. Accordingly, Sarasin has not been adding any more corporate risk at the moment and is seeking to sell down other positions Aschmann considers to have run their course.
As an alternative to corporate bonds, Sarasin has been buying names in lower-rated governments. Aschmann has added Poland (BBB+) and Slovenia (A+) which will have more potential to tighten from where they are trading right now. Polish paper was bid at 106.45 last week.
