MFS Investments plans to increase its allocation to European government and corporate debt from 11% of its $2 billion portfolio to about 15%, or by some $80 million, after U.S. high-grade and high-yield paper rallies. Jim Swanson, Boston-based fixed-income strategist, says U.S. paper should rally in either February or March at which time he would sell positions and shift more assets to German, Italian, Finnish, Irish and U.K. government paper as well as European banks.
Currently, Swanson sees more value in U.S. Treasuries and corporates, because he believes these bonds are oversold and will rally once the over-optimism for a "v-shaped" economic recovery diminishes. "It's going to be a slow recovery," he says.
In terms of Europe, Swanson says he owns government paper in the five- to 10-year area, and that he will add to his current positions when he sells off U.S. paper.
MFS owns European bank paper with durations of less than 10 years. Going forward Swanson would add to positions in Italy's Unicredito, BNP Paribas, Credit Lyonnais, Barclays and the Union Bank of Norway, because he believes the European Central Bank will cut rates further, to the banks' obvious benefit. Furthermore, European banks have maintained their credit quality during the economic downturn.
MFS uses the J.P. Morgan Non-U.S. index as a benchmark when investing in European paper.
