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German PM Waits For Good News Before Adding Corps

DG Capital Management is looking to add but will hold off to its corporate bond allocation until there are signs the global economy is back on its feet and more companies begin to post better earnings news. "We want to see more positive numbers from companies, like [International Business Machines] posted recently," says Peter Lockhofen, senior portfolio manager, who manages E3 billion in Frankfurt. He declined to say how much more of the portfolio potentially could be reinvested in corporates.

Recently, Lockhofen sold off government bonds and bought corporates. He said the main motivation for the move was corporate bonds' cheapness and higher yields. Lockhofen bought autos, telecoms, tobaccos as well as utilities. He purchased paper with four- to six-year maturities from General Motors, Ford Motor Co., Daimler Chrysler, Deutsche Telekom, France Telecom and Philip Morris. He says paper in the four- to six-year part of the curve offered the best risk/reward profile.

Lockhofen sold European government bonds mainly from Germany, the Netherlands, Austria and France. He sold paper from the one- to three-year portion of the curve. The portfolio's allocation to government bonds had been roughly 50% and Lockhofen reduced that exposure by roughly 10%. The remaining 50% of the portfolio is equally divided between agencies and mortgage bonds. Lockhofen has no plans to change that allocation.

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