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Five-year credit protection on Heidelberger Zement, the German cement producer, widened about 100 basis points over the last week, blowing out to 510 basis points/530bps last Wednesday from 375bps/450bps a week before. On Monday, the company announced it had cancelled plans to sell its building materials division, HBE, and on the same day Standard & Poor's downgraded the parent to BBB minus from BBB. After these negative credit events, spreads began widening to 450bps/480bps, traders said. They added that volume was low, however, since the name is so illiquid, and a few trades caused spreads to widen substantially.

Hedge fund manager Maystone Partners plans to buy credit default swaps once its Maystone Continuum Fund, a convertible-bond arbitrage fund launched last month, doubles its assets under management to USD100 million. Henry Pizzutello, managing partner in Greenwich, Conn., explained that because the typical notional size of over-the-counter credit default swaps is USD5 million, the fund wants to increase its assets under management for diversification purposes before plunging into this market.

Launching and selling a loan this past month is leading to all kinds of ailments. One loan salesman confessed to taking up smoking again during a recent syndication, whilst another has had headaches caused by a particularly troublesome credit. "We were a lot happier back then," said another banker, talking about the days when they left the office before midnight.

Chandler Asset Management is looking to shift some $20 million of its short-term U.S. agency holdings to a "butterfly" position--selling three-year debentures in favor of 1.5- and 4.5-year paper.Joe McCullough, portfolio manager of $1.3 billion in taxable fixed income, says the three-year part of the curve has often been expensive relative to 1.5- and 4.5-year maturities, and the firm will make such a "butterfly" trade in those instances. Chandler will also move $20 million out of U.S. agency debentures and into corporate credit. McCullough says the firm wants to pick up yield and position itself for an economy that is expected to improve.

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.

Bonnie Mitra, portfolio manager at AMR Investment Services, will rotate 8% of the firm's portfolio, or $400 million, from mortgage-backed securities into an equal mix of agencies and high-quality corporates. The move, not triggered by any particular event, is a defensive play in anticipation of rising interest rates that adversely affects extension-risk sensitive MBS, says Mitra. He predicts higher interest rates by year-end as a result of an economic recovery stimulated by a fiscal package. He also sees an end to the Treasury rally once the uncertainty over a war with Iraq is lifted and the conflict resolved. By the end of the year, the 10-year Treasury yield will increase to a 4.5-5% range, he predicts. Last Monday, the 10-year Treasury yielded 3.95%.

Investec Asset Management, a U.K. fund manager with $8.5 billion in fixed-income assets under management, has lengthened duration on its portfolios. Geoff Lunt, a London-based fund manager, says, "It's been our view for a long time that the global political situation is going to get worse, and that is indeed what has been the case over the past week. The consensus is that [U.K.] interest rates are likely going to be cut, and obviously bonds will have a premium."

Merrill Lynch has hired Alan Galishoff from J.P. Morgan Securities to head up a nascent mortgage-backed securities proprietary trading effort, a move first reported last Tuesday on www.bondweek.com. Galishoff could not be reached for comment last Tuesday morning, with a co-worker saying he had already left the firm. He had been head of J.P. Morgan's collateralized mortgage obligation and MBS derivative effort since early 2000. He will report to Merrill's global rates group co-head Barry Wittlin. Wittlin did not return a phone call seeking comment, nor did he reply to an e-mail message. It could not be determined if Galishoff will be the sole MBS arbitrage trader there or if he will be part of a larger group.

A group of bondholders holding over 65% of a $950 million issue by Millicom International Cellular has hired counsel and a financial advisor, and plans to reject an exchange offer made by the company on Jan. 21. "It's very far removed from anything that would be remotely acceptable in terms of proper allocation of value," says Tony Princi, partner at Orrick, Herrington & Sutcliffe, counsel for the bondholders.

Morgan Stanley is putting together a French commercial mortgage-backed securitization that should be coming to market in the coming weeks, according to London-based bankers. The deal, which will be E340 million and securitize a single property loan in France, is Morgan Stanley's 14th through its European Loan Conduit program (ELOC). Calls to Morgan Stanley seeking comment were not returned.

Greg Coules has joined J.P. Morgan Securities in a newly created position as a v.p. and distressed loan analyst, according to sell-side officials with knowledge of the hire. Coules was one of a number of high-yield professionals released from Morgan Stanley in November. He had spent three years at Morgan Stanley covering the broadcasting sector. Coules declined comment when reached at J.P. Morgan. He will report to Eric Rosen, managing director and head of the loan-trading group. Rosen also declined comment.