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Bailard, Biehl & Kaiser plans to reduce the portfolio's duration by selling some $10-$15 million of 10- and 30-year govvies in order to add five-year Treasury notes. At the same time, the Foster City, Calif., firm will seek to add corporate exposure by up to $10 million. Portfolio managerEric Leve says he is making the move because he expects 30-year corporates to outperform 30-year Treasuries due to additional government defense spending, industry bailouts and rebuilding, and decreased Treasury buybacks. Leve manages just over $100 million in taxable bonds, though the firm manages $250 million, and he says advisers of private accounts at the firm often mimic his trades.

A lowered risk tolerance and anxiety about market resilience made for sluggish activity last week. Some have taken a "slow and steady" attitude as the economy pulls itself back up from the recent World Trade Center attacks. But, as a banker put it, "We may be in the first act of a four-part play." Meanwhile, some dealers took the reprieve in stride, saying it was a result of the Jewish holiday and many being out. One market player had advice for those working last Thursday: "It's a good day to clean out your sock drawer."

Financial Counselors swapped 3% of its portfolio, or $36 million, from Treasuries into high-grade corporates last week, says Peter Greig, portfolio manager for the Kansas City-based investment firm. Concerned that the Federal Reserve is nearing the end of its easing cycle, Greig says the move was designed to preserve the portfolio's principal while picking up some incremental yield. He adds that if corporate spreads widen by an additional 15 basis points, he will swap an additional 3-6% of the portfolio, or between $36 and $72 million.

Swiss Re Investors, the New York investment arm of the giant Swiss insurer, has purchased about $1.5 billion in 15-year mortgage-backed securities over the past two weeks. Fixed-income chief Andre Moutenot, who helps manage the $13.5 billion total-return portfolio, says the trade was made as a result of the continuing pressure on the U.S. economy, particularly as reflected in declining U.S. corporate earnings. He says with defaults and downgrades continuing to increase at historically unprecedented levels, corporate bonds will remain problematic. Similarly, the sharp rate rally will allow the massive 6.5% and 7% coupon sectors (nearly 60% of the entire MBS universe) to become refinanceable. He says that the 15-year sector, or "dwarves" as they are known, have a less volatile rate of prepayments because of the higher amounts of equity built into the loan assumption.

Debt issuance picked up significantly on the week, with just under $20 billion in debt hitting the market. Issuance patterns persisted from the previous week with AAA and AA credits tapping the market at the short end to take advantage of historically low absolute all-in rates, while BBBs extended out the curve to take advantage of historically cheap term financing. Average credit quality, weighted by dollar amount of debt issued, was at a still-high AA- level for the year. There are clear signs that the new issue market is starting to free up, although it is still very much a buyers' market. Kerr-McGee and Tyson, both low/mid BBB credits, had to come at a decent concession to the secondary market to get deals done. That said, both credits tightened on the break.

Energie Baden-Württemberg (EnBW) flagged up its intention to float next year with the launch of an innovative Eu490m going-public bond. But despite EnBW's defensive status, the success of its IPO is far from being a foregone conclusion.

Although liberalisation in central and eastern Europe is driven by the need to join the EU as soon as possible, utility sector reform in the region can be slow. But, while governments remain reluctant to sell off core assets, restructuring and IPOs have opened up acquisition targets to foreign predators. And those utilities that can shake off state support may also help to shake up the sector. Laurence Knight reports

Utilities deliver and dispose of the vital needs and functions of society. As such, they are prized by investors for their stable, non-cyclical attributes. But now, more of Europe's energy utilities are slipping towards lower, riskier ratings. Market liberalisation is driving the change, and the leaders have responded with aggressive cross-border, multi-utility consolidation strategies. Quentin Carruthers reports on how the capital markets are funding this increasingly competitive industry

Italy has been at the centre of attention among European utilities in the loan market during 2001, sparking two jumbo financings to facilitate takeovers. The first of the Italian deals relates to the sell-off by Enel, Italy's state electricity monopoly, of its generation assets. Under the Bersani decree, which follows from the EU Electricity Directive, no one utility may import or produce more than 50% of Italy's power supply, and accordingly Enel must sell assets to reduce its dominant market share. Its three gencos earmarked for sale by the end of 2003 are: Elettrogen (5.4GW), Eurogen (7GW) and Italpower (2.6GW).

Dominion Resources is interviewing banks to provide the financing to back the $2.3 billion acquisition of Louis Dreyfus Natural Gas. Scott Hetzer, senior v.p. and treasurer, said Dominion will have to come up with a $1.1 billion bridge loan that would be taken out by $900 million in bonds and $200 million in trust preferred securities. Dominion is talking to a group of banks at the moment about providing the financing, both the bridge loan and the bonds. No decisions have yet been made, Hetzer said. According to bankers, Merrill Lynch is believed to have an inside track on the financing because it is advising on the transaction, but Hetzer said Merrill would not necessarily lead the financing. Hetzer declined to name the banks being interviewed. He said the timeframe for having a commitment in place is before Nov. 1, when the deal could close. Officials at Merrill Lynch declined to comment.