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Gartmore Looks To Subordinated Debt

Gartmore Investment Management is looking to add to its positions in subordinate bank and insurance debt.

Richard Hodges

Gartmore Investment Management is looking to add to its positions in subordinate bank and insurance debt. Richard Hodges, senior investment manager of ¤850 million in European corporate bonds in London, said they offer attractive yield pickup. "We like the tier I debt of the stronger European and U.K. banks and insurers which still have improving fundamentals," he said, noting that on average 10-year tier I debt trades at 100 basis points over LIBOR, whereas senior bank debt yields only 40 basis points over. Hodges said Gartmore is a buyer of Hannover Re's callable '14 notes, which are currently yielding 5 1/2%. The firm is also planning to add to its position in the Banque Nationale de Paris's 4 1/4% subordinate notes of '12, in which it already has an overweight position. He declined to specify how much he will add or specify his target position relative to the benchmark Merrill Lynch EMU Corporate Index.

On the flip side, Gartmore has recently been taking profits in high-yield corporates, which it favored in the early part of the year. With the volatility in the markets, Hodges is moving some money into liquid senior bank debt with a relatively small bid-offer spread, that he can get in and out of quickly. He is intent on maintaining a low cash position in the funds.

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