Credit Agricole Asset Management, which manages E10 billion in European corporate bonds, is unloading its long-dated telecom paper, preferring instead to buy telecom paper at the shorter end of the maturity curve. Laurent Crosnier, head of European corporate bonds in Paris, says he is maintaining the portfolio's overall exposure to telecoms, but sees more value at the short-end.
Crosnier has selectively started to switch into shorter maturities such as KPN, France Telecom, Telecom Italia,TPSA , Vodafone and Portugal Telecom. He says CAI is looking for opportunities for arbitrage between short- and long-dated paper, and is making trades as the arbitrage becomes apparent.
CAI is also adding exposure to tier-one bank debt. Where possible it is switching out of lower tier-two and senior debt in favor of tier one. For example, CAI has sold Hypovereinsbank's lower tier two and bought tier one. The firm is continuing to look for similar opportunities and has recently bought HBSC and Société Générale's tier one debt. "We like to think that there is some value when compared to lower tier two and senior debt. We expect to see more spread compression," says Crosnier.
Right now CAI has a neutral view on the corporate credit market. The manager is overweight telecoms and financials--especially subordinated paper. In terms of underweights, the firm has scaled back autos, specifically U.S. names Ford Motor Company and General Motors. The firm is also underweight tobacco and the utility sector. CAI uses the Lehman Brothers Euro corporate bond index as its benchmark.