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National City Investment Management, a Cleveland money manager with some $4 billion in taxable fixed-income under management, is looking to shorten its duration to a neutral position. Andy Harding, portfolio manager, says he believes Treasuries are oversold, and he does not expect the economy to improve until the middle to the end of the second quarter. As a result, the firm has extended duration in recent weeks to 10% long to its various benchmarks across 95 separate portfolios. Portfolios managed against the 4.5-year Lehman Brothers aggregate index, for example, have a duration of 4.7 to 4.8 years. Harding says the firm will move to a neutral duration once the yield on 10-year Treasuries reaches 4.60%, which he believes could happen in a month, if not sooner, given the market's volatility. Last Tuesday the 10-year Treasury was yielding 5.06%.

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.

State Street global Advisors, which runs €19 billion in global fixed-income assets from its London office, is going to increase its position in automotive credits by adding the expected new issue from Daimler-Chrysler when it hits the market in the New Year. Nicole Jackman, head of European corporate bond management, says the firm will increase its now slightly underweight position in autos to a neutral one relative to its benchmarks. She adds that she likes shorter-dated auto paper because it has an attractive breakeven on the shorter end of the curve and is thus less risky. She says she is waiting for the new issuance rather than buying in the secondary market because she believes she will receive a new issue premium. Following the same thinking, Jackman has already bought Ford's 5.625% notes of '04 and General Motors' 5.75% notes of '06 when they were issued recently.

Bentley Myer, portfolio manager with William Blair Investments, says he is going to swap 5% of the funds he manages, or $25 million, out of Treasuries into corporates, on the view that the economy is bound to recover and that corporates will outperform Treasuries in 2002.

Some investors are avoiding European utilities, fearing there may be more downgrades in the works as companies are forced to add debt to their balance sheets to finance acquisitions. Nicole Jackman, head of European corporate bond management at State Street Global Advisors in London, says she's underweight utilities, especially highly rated ones, because she is worried about downgrades. For example, last week Electricidade de Portugal (Aa3/AA-) was put on a negative outlook by Standard & Poor's in response to fears its financial profile will erode.

High-yield strategists and investors are split over whether portfolio managers should continue to increase credit risk in their portfolios, as they have done in recent weeks. Spreads between single-B credits and higher-rated double-Bs were at a record 505 basis points on Oct.5, but had narrowed to 335 basis points last Monday. Walter McGuire, global high-yield strategist at Deutsche Banc Securities, expects that gap to narrow another 10 basis points by year-end, but he says investors should move even further down the credit ladder, adding some triple-C rated names to their portfolios. McGuire projects credits yielding 20-30% (which include a number of triple-Cs) will return 5% over the next two months.

Securitizations from Latin America, particularly Brazil, should grow in number next year, according to London asset-backed bankers and analysts. Aside from six bank deals, the region saw only two corporate securitizations this year: Petrobras, Brazil's blue-chip oil company, and PDVSA Finance, a securitization vehicle launched by Venezuela's state-owned oil company PDVSA. Nancy Shue, structured finance analyst at Standard & Poor's in New York, predicts that strong exporting companies will likely seek structured deals featuring political risk insurance in 2002, as the international debt capital markets remain firmly shut to LatAm corporates--at least for plain vanilla bonds. Already, Companhia Brasileira de Bebidas (CBB) has announced its intention to launch a $500 million securitization featuring a guarantee by its parent company Companhia de Bebidas das Americas and carrying political risk insurance. CBB will use some of the proceeds to refinance existing debt and other companies will likely follow suit as the need for more creative financing methods increases.

An aggressive financing package from adviser Lehman Brothers propelled GTCR Golder Rauner's $800 million cash bid for TSI Telecommunication Services past other competitors. GTCR principal David Donnini confirmed Lehman bid aggressively, but could not comment on the other firms' approaches. Sources familiar with the discussions said Lehman was very aggressive in stepping up with the money and allowing for generous leverage ratios--a step that set it apart from competing bids. "The bids [for TSI] were due a couple of weeks after Sept. 11 when the market was volatile and Lehman stepped up when not every other institution was willing to provide to the other sponsors," one source added.

Germantown, Tenn.-based Equity Inns, a hotel real estate investment trust, has joined the club of companies in the hotel industry that have amended credit lines to relax covenant ratios. Howard Silver, president and chief operating officer for Equity Inns said the decline in the revenue of the hotel industry following the Sept. 11 terrorist attacks put Equity Inns in a position where it did not think it would make the various covenants. "The bank group are pretty understanding as most of these banks are in the other hotels' lines," he said. "The industry has been smashed." Other hotel companies that have sought covenant relief include Starwood Hotels & Resorts Worldwide and RFS Hotel Investors

Richer spreads on loans and increased interest from investors looking for euro credit exposure have given arbitrage collateralized debt obligations the needed boost to fill the European arbitrage pipeline. Investors have long scoffed at the CDO market in Europe, saying there was a lack of high-yield collateral and liquidity. But pricing and structural developments in the European leveraged loan market are making loans there look more like their counterparts in the U.S. The latest deal to capitalize on increased interest is Prudential M&G Investment Management's E513 million ($458 million) Panther II CDO, which is buying up assets now.

Maritrans secured an $85 million credit facility on Nov. 27 to support additional funding needs at lower pricing. Walter Bromfield, treasurer, explained the company tapped the bank debt market to refinance $66 million in debt--a portion of which was a $33 million indenture with a fixed rate of 91/ 4%. By replacing the bonds with floating-rate debt, the company was able to finance its debt at a cheaper rate. The new deal is priced against a grid based on performance beginning at LIBOR plus 41/ 2%. In addition to the bonds, a $33 million revolver was also part of the overall refinancing on the deal. "This was an opportunity to lower the cost while increasing the financing," said Bromfield.

London-based industrial analysts are concerned that the reaffirmation of Fiat's Baa2 stable rating from Moody's Investors Service last week is not accurate given the amount of work the company has to do to de-leverage. "Given the fact that they're restructuring so heavily and haven't performed well even in good times, I'm surprised with the stable outlook," says Victoria Whitehead, analyst at Bear Stearns in London. "It's not a good company. The rating is deceiving," she adds. Whitehead believes Fiat should be rated Baa3 with a negative outlook. Calls to Eric de Bodard, managing director at Moody's in London, were not returned.