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Waddell & Reed Investment Management Co., a money management firm in Kansas City, Kan., is looking to add 5% ($28.5 million) to the MBS allocation in its $575 Waddell & Reed Advisors Bond fund, assuming further steepening in the yield curve.

Chandler Asset Management, a $1.2 billion San Diego-based money manager, plans to sell some $120 million in U.S. agencies and possibly some double- and triple-A rated corporates in favor of slightly lower-rated financial paper. Portfolio manager Martin Cassell says that as the economic picture slowly improves, he will look to pick up some yield on names that have been beaten up as of late. Though many managers have already begun to move down the credit ladder, Cassell says he wants clear indications of a turnaround before implementing his strategy. He is looking for signs such as a stabilization in jobless claims and for spreads on two- to 10-year treasuries to widen to about 140 basis points before beginning a gradual shift down the ladder over a period of a month or two. As of Tuesday last week, this spread was 121 basis points.

Christian Noyes, a high-yield portfolio manager with Penn Capital Management, is repositioning the firms high-yield portfolio by moving down the credit curve. The move is designed to take advantage of what Noyes sees as a prolonged period of spread tightening for select high-yield credits, as well as the anticipation that an economic recovery is impending. Noyes predicts an upswing for the high-yield sector for two reasons. First, the normalization of the yield curve brings a positive carry on holding inventory, which leads to more liquidity and less risk perception in the market. Secondly, there have been consistent cash flows into the high yield sector since the year began.

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Issuers, investors and banks have been quick to take advantage of the change to Hungary's foreign exchange regime in May that paved the way for the emergence of eastern Europe's latest Eurocurrency market. In this special report, Nick Parsons examines the prospects for the sector and what needs to be done for the Euroforint market to continue its rapid growth.

A Japanese bank sold an $11 million pro rata piece of Safety-Kleen's bank debt last Wednesday in an auction at 42 1/2, down slightly from 43-45 the week before. Sumitomo Mitsui Banking reportedly sold the pro rata piece and Deutsche Banc Alex. Brown was rumored to be the buyer, but officials at both banks declined to comment. Dealers say there's still a lot of uncertainty about the company, noting that financial statements are about to be delivered to the banks in a meeting later this month. "A bank meeting is coming up, and people may be taking a positive view from the events coming up," a trader said. Another noted that the company, "hasn't gotten its arms around the problems yet." Details on the upcoming meeting could not be determined.

Standard & Poor's in New York has added several new staff members to its North American ABS group, according to Patrice Jordan, global head of ABS/MBS. Jordan says S&P is building up because the ABS business is very strong as well as to replace staff that recently moved on.

A Salomon Smith Barney report saying oil-driller Pride International's (Ba3/BB) all-stock acquisition of Marine Drilling "may result in an investment-grade rating for the new Pride International once the acquisition closes," is being met with skepticism by the buy- and sell-sides. Though many pros believe the acquisition will result in an upgrade because Marine Drilling has very little debt and the acquisition was conservatively financed, they do not see Pride climbing the full two or three notches to make the cut. Keith Petersen, the energy analyst at SSB who issued the report, referred calls to a firm SSB spokeswoman, who declined comment.

Moody's Investors Service has upgraded Stryker Corporation's $1.65 billion senior secured credit facility. The shift from a Ba1 rating to an investment grade Baa3, is a result of positive operating trends, the successful completion of the Howmedica integration and further confidence in the management's commitment to achieve and maintain an investment-grade profile. The Kalamazoo, Mich.-based company is a manufacturer of specialty surgical and medical products. Since the Howmedica acquisition in 1998, total debt has been reduced by approximately $412 million to $1.09 billion. Leverage as measured by debt/EBITDA ratio has decreased to 1.8x from 3.5x in 1998. Moody's anticipates that Stryker will continue to focus on improvements, though there are concerns that the company will make acquisitions that may impact debt reduction measures.

First Union's marathon $2.6 billion deal for Suiza Foods, backing the acquisition of Dean Foods, is almost over, but not until another $200 million is added. Cory Olson, treasurer, said documentation is still to be sent out and there is the potential to increase the line $200 million to $2.8 billion. Final closing is expected in late July, when secondary trading will begin, Olson added, declining all further comment until closing.

Margaret Cannella, a retail analyst at J.P. Morgan Securities and an Institutional Investor first-team member in 2000, sees JC Penney (Ba2/BBB-) as a good buy in spite of a generally grim picture for retail. Portfolio managers are wary, however. Cannella notes that the company's 7.6% of '07 went up a point to $92.50 from May 25 to June 25, while bonds of similar maturities for WalMart Stores (Aa2/AA), Target Corporation (A2/A) and Federated Department Stores (Baa1/BBB+), fell by two, six, and 10 points, respectively. Cannella says the credit "could trade up a bit more" through the end of August, because it has managed its finances well and fully expects to meet earnings forecasts. She declines to set a target for fair value.