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Chicago Firm Bulks Up On Financial Credits

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Mesirow Financial will put some $5 million of new money to work in bonds of finance, banking and insurance companies. Bill Gossard, portfolio manager of $600 million in taxable fixed income, says financial credits offer more yield than industrial names. He points to the FleetBoston Financial 4 1/2% notes of '08 (A2/A-), which traded at 75 basis points over Treasuries last Monday. By contrast, the Hewlett-Packard 3 5/8% '08 (A3/A-) were trading at 40 basis points over the curve. Gossard says he prefers to invest in the three- to seven-year maturity range, as those credits benefit from the current steep yield curve--improving in price as they move closer to maturity.

Gossard says Mesirow is not overly concerned with individual credit stories at this point, but wants merely to avoid potential blowups. Recent names the firm added include a new issue from Allstate--the 21/2% notes of '08 (Aa2/AA+)--which traded at 59 basis points over Treasuries last Monday. The firm also bought the International Lease Finance 2.95% notes of '06 (A1/NA), which were trading at 95 basis points over Treasuries. Gossard says that though the company leases aircraft, it has not been greatly damaged by the woes of the airline industry because it is owned by American International Group and it did not own many aircraft when the economy deteriorated. Also, he says, it offers the added attraction of trading some 20 basis points cheaper than straight AIG paper.

At a duration of 4.9 years, the Chicago-based firm is short one of its main bogeys, the Lehman Brothers government credit index. Mesirow allocates 50% to corporates, 25% to Treasuries, 15% to agency debentures and 10% to mortgage-backed securities.

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