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Inflation-indexed bonds, as well as callable agency securities, are where Trevor, Stewart, Burton & Jacobson has been putting new money to work, given both the recent rally in bonds and the firm's bearish bond view going forward, according to portfolio manager Alan Kral. He has been buying callable agencies--Freddie Mac orFannie Mae bonds that are callable after a certain period of time has expired, usually two years--as a yield play. He has been picking up upper investment grade spreads on short maturity paper without sacrificing credit quality. On a called bond, he typically can receive 125 basis points above AAA commercial paper, allowing him a 5.9-5.95% current yield. On bonds the agencies do not, or can't, exercise their right to call, he gets 80-90 basis points to the 10-year Treasury bond, or a 5.80% current yield.

Financial Counselors plans on shortening the duration on its agency allocation, and will probably increase exposure to investment-grade financial sector corporate debt. Portfolio manager Peter Greig, who runs some $1.2 billion in taxable fixed income, is waiting for a retest of $106 on 30-year T-bond futures before selling 10-year treasuries to shorten the overall duration of his portfolio. He plans on making the move because he feels the short end of the curve is overpriced.

Moore Capital, the $9.4 billion New York-based hedge fund run by Louis Bacon, has hired Richard Furst, head of distressed credit sales, trading and research at Banc of America Securities, to start up a distressed bond trading book. Furst, who started at Moore early last week, says he is responsible for trading distressed bonds across all sectors at the fund manager. He reports to firm President Elaine Crocker, who was traveling and did not return calls. Furst declined comment as to whether he was the first of several hires in this area, and whether Moore would be making a push in this area.

The Deal Roll-off Chart, provided by Capital DATA Loanware, lists the 50 largest leveraged credit facilities in the U.S. market that are due to mature in the coming month. It is designed to provide a look at potentially available money in the market as credits are renewed or retired.

Merrill Lynch Asset Management will be rotating $300 million from treasuries into MBS contingent upon favorable prepayment reports from the agencies, as well as possible interest-rate moves, says portfolio manager Christopher Ayoub.

The Bond Market Association has formed a high-yield committee that will work with regulators to ensure that a new National Association of Securities Dealers corporate bond trade reporting system, called TRACE (Trade Reporting and Comparison Entry), preserves dealer anonymity and doesn't dry up liquidity in smaller investment grade and high-yield issues. Michel de Konkoly Thege, BMA associate general counsel and staff adviser to the committee, says in less liquid markets, "a firm's willingness to commit capital to holdings in a particular security could diminish if other market participants anticipate what their strategy is."

A $9 million piece of Hayes Lemmerz International's pro rata traded around 87 out of Sanwa Bank early last week, calls to the bank were not returned. The buyer could not be determined. It was the first trade for the credit. "[The company is] getting crushed because the demand for cars is decreasing," a market watcher said. The Romulus, Mich.-based company, which makes steel and aluminum wheels for vehicles, is said to be feeling the effects of a weak automotive sector. General Motors,Ford and Daimler Chrysler account for 60% of its sales. A company spokesman did not return calls for comment.

Moody's Investors Services downgraded Cambridge, Mass.-based Polaroid Corp.'s bank loan rating to B2 from Ba2 citing the decline of the company's traditional core business and the inability of new product contributions to offset the weakness in the old. Furthermore, the necessity of refinancing $500 million of bank loans by January in a weakening market has contributed to the action. The rating reflects the increased competition the company is facing in the digital photography sphere, its challenge to generate free cash flow this year and vulnerability to contractions of the U.S. economy. The current rating level is supported by the company's large installed base of instant film users, the continued growth of its new product offerings and an expectation that capital expenditure reduction will occur in 2001. Polaroid is attempting to sell assets to pay off debt, including a 56-acre property in Waltham, Mass., and has announced plans to cut expenses of $60 million a year.

The game of guessing where the bottom is for the telecom sector is cramping the style of some staple names in the secondary market. Players who are hedging their bets on where the paper will level out are trading old standbys such as Nextel Communications, which traded in the 98 1/2 to 98 3/4 range last week. McCleod USA, once trading above par, traded in the 99 range. A $5 million piece of SpectraSite Communications' bank debt traded at 97 7/8.

Bankers said roughly $200 million in commitments came in at the bank meeting last week for Deutsche Bank, Bank of America, and Credit Suisse First Boston's fully underwritten $700 million deal for U.S. Industries.Royal Bank of Scotland and Bank of Nova Scotia have reportedly signed on as documentation agents on the deal. Buysiders said they were not surprised that the $275 million "B" tranche did well early on as they consider it a strong credit. But one noted that the company's possible vulnerability to economic cycles may slow the sale of the outdoor furniture manufacturer's credit.