Citigroup Asset Management, which manages E5 billion in fixed-income assets through its London-based group, at the last minute pulled its order for Deutsche Telekom bonds, which were issued late last month. "We were not impressed with Deutsche Telekom's arrogance of not writing down debt and not addressing bondholders' concerns. We had an order in there, but pulled it. Our analyst was of opinion it's one to avoid," says Denis Mangan, director and head of European fixed income. Instead, Citi bought Imperial Tobacco's new issue last week and plans to buy Renault paper once it hits the market. Salomon Smith Barney was one of the co-leads on Deutsche Telekom's E5 billion deal.
"As far as Renault is concerned, our analyst is getting more comfortable with the credit due to positive momentum with the Nissan restructuring plan," says Mangan. In addition, new product introductions expected from Renault later this year and next will address the company's aging lineup, he adds.
In general, Citi has been adding investment-grade credit mainly in the single-A to triple-B range. Mangan says concern about an economic double dip has prevented corporate spreads from tightening too quickly.
Citi is 10% overweight versus the Salomon Smith Barney Broad investment-grade index, which has a 30% allocation to corporates. Most recently, the firm bought Alcan's 5.5% of '06, AOLTimeWarner's 6.1% of '07, Viacom's 5 5/8% of '07, British American Tobacco's 4.875% of '09 and 6.5% of '05, Bombardier's 6.125% of '07, MBNA Europe's 6.5% of '07, Morgan Stanley's 5.75% of '09, Talisman Energy's 6.625% of '17 and Textron's 6.625% of '20. Also, Citi bought Viacom and AOL to get exposure to the advertising cycle, which it believes will pick up.
