Winterthur Investment Management Corp., a New York-based firm managing $2.2 billion in assets in a number of subsidiaries for the Swiss insurer, is seeking to add at least $100 million in triple-B rated corporates. The firm's president, Reto Koller, says it wants to take advantage of the wide spreads available in new issues with a triple-B rating in cyclical industries such as oil, basic industries and consumer cyclicals. He says such issues are currently available at wide spreads due to the "war economy." He cites J.P. Morgan Securities research showing that spreads on auto parts companies' bonds were out 92 basis points as of Nov. 2, since Sept. 11. Spreads on automotive companies' issues are out 85 basis points during the same time frame, while paper and forest products are out 66 basis points.
Winterthur had been extending duration prior to the U.S. Treasury's recent decision to stop issuing 30-year bonds. Though the idea had been to take advantage of a steep curve, Koller calls the sudden flattening of the curve resulting from the Treasury's decision "100% luck." One recent name Winterthur bought was Ford Motor Company's 7.45% notes of '31 (A3/BBB+). Last Monday, the paper was trading at 357 basis points over Treasuries.
At a duration of 6.1 years, Winterthur is long its benchmark index, the Salomon Smith Barney Treasury/government-sponsored credit. It allocates 46% to corporates, 35% to Treasuries, 11% to asset-backed securities and 8% to U.S. agency debentures.
