Free content

Rullison & Co. will rotate 10% of its portfolio from investment grade into high-yield corporate bonds over the next six weeks, says Christopher Hayes, portfolio manager with the asset management firm in Rochester, N.Y. The manager--who favors a value investing style--believes a lot of high-yield paper has suffered due to the telecom crisis, adding to the spread-widening between investment-grade and junk bonds, and creating a lot of good buying opportunities in the lower credit range.

McGlinn Capital Management, a money manager based in Reading, Pa., is considering adding roughly $50-100 million in 15-year mortgages, and another $50-100 million in high-rated junk credits. J.P. Weaver, who manages just under $1 billion in taxable fixed income assets, plans to make the move within the next few weeks. He says he'll sell Treasuries and possibly some agencies to fund the move, though he won't specify maturities or what type of agencies. He is duration neutral to his three Lehman Brothers benchmark indices, and says he will remain neutral for now.Weaver likes 15-year MBS because it has lagged 30-year paper, and he expects bank demand for 15-year paper to pick up to reflect Federal Reserve easing. Banks tend to invest in 15-year MBS in an easing environment because it fits their liability profile, he explains.

This chart, provided by Citibank/Salomon Smith Barney Inc., tracks bid-ask prices for par credit facilities that trade in the secondary market. It also tracks facility amounts, ratings, pricing and maturities.

Up-front fees for pro rata tranches declined slightly to 4.7 basis points per one million dollars committed for April 2001 while institutional up-front fees remained steady at 3.1 basis points. According to Portfolio Management Data, fees on pro rata tranches for the three months ending April 2000 were 2.9 basis points and were 2.2 basis points for institutional pieces last year.

Segall, Bryant & Hamill has been reducing corporates exposure over the past several weeks by a total of 6%, or $90 million, by swapping into current coupon MBS, on the view that the refinancing wave is largely over in the mortgage sector, says portfolio manager Greg Hosbein. Hosbein, who helps manage the firm's $1.5 billion fixed-income account, says the brutal prepayment cycle of the last several months has cheapened up the 6.5% conventional mortgage sector. Another factor underlying the move is that the firm has been overweight the corporate sector for nearly three months, convinced that the Federal Reserve's aggressive easing policy would disproportionately benefit corporates. With its view that the Fed is likely to shift to a neutral stance soon, it has have begun taking some profits on unspecified credits. Hosbein does note, however, that the firm does retain positions in Masco (Baa1/BBB+), Lowes (A3/A), Household International (A2/A) and AXA Financial (A2/A-).

Axia Energy, the energy trading company formed by subsidiaries of Koch Industries and Entergy, has filed suit against Hess Energy Trading Co. (HETCO) in the U.S. District Court for the Southern District of Texas, in Houston. In the civil action, filed May 8, Axia charges that HETCO conspired with two former Koch employees--who were later hired by HETCO--to obtain proprietary weather derivatives information from Axia. Stephen Semlitz, managing director of HETCO in New York, said the charges are without validity. "We are not using anything that's proprietary to Axia, nor are any of our employees." Officials at Axia declined all comment.

Dresdner Kleinwort Wasserstein in Tokyo has hiredHideto Takata, interest-rate derivatives trader at Bank of America in Tokyo, in a new position trading short-term interest-rate derivatives. Torsten Schlotzhauer, head of interest-rate derivatives trading at DKW and to whom Takata reports, said the new hire has a good background in interest-rate trading, and should make a positive contribution as a market maker on the short-end. Schlotzhauer added that he plans to expand the desk, declining all further comment on this point. Takata could not be reached by press time.

Marsh Securities, a unit of insurance, risk management and consulting company Marsh & McLennan Companies, has hired Paul Scalfani, managing director, structured credit products at CDC Investment Management in New York. Scalfani joins in the new position of managing director, head of the structured solutions group in New York. Jamshid Ehsani, president and ceo of Marsh Securities, said Scalfani will be responsible for structuring and placing transactions. He added that Scalfani's clients will include corporates and financial institutions. Marsh Securities often uses listed and over-the-counter credit derivatives to structure transactions, such as CDOs, CLOs and CBOs, for clients.

Deutsche Bank and Credit Suisse First Boston separately are looking to enter the weather derivatives market for the first time. The move is significant, according to weather traders in the U.S. and Europe, because both likely would be able to bring corporates into the market via their lending and investment banking relationships, and both are large, well capitalized firms.

The U.S. dollar likely will appreciate to between JPY125-127 over the next two-months and to take advantage of the move Ken Landon, senior currency strategist at Deutsche Bank in Tokyo, recommends investors purchase dollar calls or buy the greenback outright in the spot market.

Heightened expectations that the European Central Bank will cut interest rates in line with the Federal Reserve following last week's 50 basis point U.S. rate cut are driving demand for over-the-counter Euribor corridor swaps. The trades are designed to take advantage of the growing interest-rate differential between ECB and Fed short-term rates, explained Mathias Echene, v.p.-structured products marketing at Schroder Salomon Smith Barney in London. Investors in Germany, France Belgium and Luxembourg have been piling into the positions in sizes of USD50-100 million (notional), he said.