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Investment-grade strategists say corporate bonds will not perform nearly as well in the second half of the year as they did in the first. Louise Purdell, corporate strategist at Deutsche Bank Securities, recently changed her corporate recommendation from overweight to neutral, citing problems in Argentina, a continued dim outlook for the U.S. economy and the low likelihood of further significant rate cutting by the Federal Reserve. Deutsche has conducted surveys indicating that most investors are overweight the sector, and Purdell believes there is minimal room for further spread tightening, given the significant risks involved. She cites Lehman Brothers indices to show that from January to June U.S. investment-grade credits had a 5.38% nominal return and 282 basis points of excess return versus Treasuries. For the second half of the year, she expects the excess return to Treasuries to be in the range of 65 to 75 basis points.

Lehman Brothers has been selected to fully underwrite a debt package backing Tesoro Petroleum's acquisition of two U.S. refineries from BP for $677 million. A spokeswoman for the San Antonio-based refining and marketing company, said the package will refinance existing corporate working capital, working capital for the refineries, as well as the total acquisition amount. At this stage, all financing options revolve around debt, however, it is too early to say what form it will take, she added. Lehman acted as the financial adviser to Tesoro.

Goldman Sachs is launching this week a $185 million credit backing the Berkshire Partners acquisition of children's clothier William Carter for $450 million, from fellow buyout shop Investcorp. According to one banker there will also be a bond deal in the region of $175 million. The loan will consist of a $60 million revolver priced at LIBOR plus 3% and a $125 million term loan "B" with a spread of LIBOR plus 33/4 %. Other banks with lead roles are still to be determined, the banker said. Commitment fees could not be ascertained.

Rick Kammler made a big trade on Wednesday, going to UBS Warburg from his par trading position at Bear Stearns. According to traders, Kammler took a similar role. "It will be a good platform for him; he has free reign to do a lot of sales," one dealer remarked. Among those who know Kammler he has a strong reputation and should bring good name recognition to UBS, which has been building up its trading desk over the year. "UBS has been fairly aggressive at recruiting," said a dealer. Spokespeople at both UBS and Bear Stearns did not return calls seeking comment.

Buysiders are groaning at the thin pricing on a $1.15 billion acquisition credit J.P. Morgan brought to market on behalf of Land O'Lakes, but they also concede that the deal underlines just how trim prices on institutional tranches are becoming in favored sectors. One buysider noted that as funds compete for paper such as food, they don't have much of a choice but to buy into tighter pricing on deals. Even with institutional tranches priced as low as 2 and 21/ 2% over LIBOR, investors expect the credit to make it through syndication. "It's really getting thin," lamented one buysider, admitting that the demand for paper out of the food sector outweighs supply.

Tom Houghton, a buyside analyst covering electric utilities and natural gas pipelines, has joined American Express Financial Advisors in Minneapolis, Minn. Houghton reports to Tim Masek, head of research. An American Express spokeswoman says Houghton replaces Ron Coleman, who left the firm earlier this year, and Masek says he plans no further hires.

After a failed auction two weeks ago, Pillowtex's bank debt finally traded on Friday, July 13 at around about the level where it was snubbed. Dealers said $36 million traded in a single shot at 35. Dealers were unsure as to why someone was willing to pay at a level that failed earlier in the week at an auction. The auction failed earlier in the week as bids came in shy of the floor, which was said to be in the mid-30s. Bank of Nova Scotia was rumored to be the seller of the piece and Morgan Stanley was said to be one of the invited players to the trade (LMW, 7/16). Pillowtex, based in Dallas, is a home-textile manufacturer. A company spokesman could not be reached by press time.

Levels appear to be weakening for Lyondell Chemical on industry softness. Dealers said the Houston-based polymers and petrochemicals manufacturer topped off at 104 two months ago, but it has slowly been coming down since. A trade early in the week came in at 103 3/8, followed by a 102 1/16 price in a later deal. A dealer said the company recently came out with weaker than expected earnings. He predicts levels will continue to weaken. "There's more downside than upside," he said. Another dealer agreed. "There's just concern about the petrochemical sector," he said, noting that raw material prices are high now. Calls to a company spokeswoman were not returned by press time.

Investors say falling commodity prices are causing the bonds of several energy companies to trade lower than usual on the expectation that profits will decline. They are divided, however, on whether to sell off some of their holdings, or to buy on weakness. Natural-gas futures were close to 15-month lows last week, and crude-oil was at a 14-month low.

Bonds of natural gas and power suppliers accused of overcharging California's utilities were trading at or close to their wides for the year last week, and fixed-income energy pros say they are well oversold. Enron,El Paso Natural Gas,Calpine and Williams are among several companies from which the state wants a combined $8.9 billion. The Federal Energy Regulatory Commission (FERC) is currently considering the state's allegations.

The dancing stopped for Comdisco last week after the company announced that it had filed for bankruptcy. Dealers differed over a reported trade at 79 1/2-80, immediately following the announcement. One banker questioned whether the trade actually occurred, saying the bank debt would likely be a solid point lower than the bonds. The bonds were reported at 80 1/2 range on the six year maturity and 82-83 on the nine year maturity. The bank debt traded in the low 60s in early June due to uncertainty surrounding the credit (LMW, 6/3).

Dade Behring bank debt has taken a 10-point jump in two weeks, hitting 80 last week, over anticipation that a restructuring deal is in the works. A market watcher theorized that the prospect of a partial debt for equity swap is propelling the debt, while another said there may be a move made to buy the company. The diagnostic blood equipment manufacturer held a conference call to lenders late Thursday. The company has a $1.250 billion deal that breaks down into five tranches and expires in 2007. Deutsche Banc Alex. Brown, Morgan Stanley, Goldman Sachs, and Credit Suisse First Boston are the lead arrangers. Officials at the banks did not return calls regarding the conference call by press time.