Lombard Odier, which manages E1.5 billion in European corporate credit, is taking a step back from the market to gauge the expected flood of new issuance, after which it will begin to look at the primary market. Rodrigo Araya, corporate credit portfolio manager based in Amsterdam, says the market may come under pressure from large amounts of issuance and that he is waiting for spreads to widen out before getting back in to the market. He would like to see more issuance from the industrial sector to gain some diversifaction in his portfolio. "If [the issue] is interesting it's gone and your allocation is very low," he says of the current state of the primary market.
Over the past few weeks, Araya has been reducing risk positions, shaving off telecom exposure and taking profits in autos. Until last month, Araya says he had been in and out of KPN's 7 1/4% of '06--a step up bond--depending on levels. He took profits in that position, because the step-up was looking expensive and bought into the '05s and '08s to put on a barbell trade. Araya has since liquidated his position in '08s, but has stayed with the '05s to maintain some exposure to KPN.
Araya says he picked up Ford's 6% of '05 earlier in the year when the bonds had been hammered. Ford tightened has since tightened and Araya has since sold the position and taken profits. "The fundamental story hasn't changed that much, but the economy has improved, stock market volatility has dropped and nervousness [around the credit] calmed down making Ford outperform," says Araya. Ford profits were reinvested in Cyprus's 51Ž2% of '12, a defensive interim trade. Lombard Odier's primary corporate credit benchmark is the Salomon Smith Barney Non-EGBI Euro Big. It also uses the Merrill Lynch Credit Index.
