Securitization People and Markets

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.

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.

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.

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.

A $1.5 billion bond offering by U.S. Bancorp (A1/A+) last Thursday was sold so quickly by co-lead managers Credit Suisse First Boston and Lehman Brothers that it prompted rumors that a single player purchased nearly $1 billion of the deal, an unprecedented size for a corporate bond trade. As Wayne Schmidt, a senior portfolio manager at Advantus Capital Management in Minneapolis puts it: "I got up for coffee after placing an order and about two minutes later I was told the deal was done." He adds that although deals can get placed quickly, "getting it done in 15 minutes is ridiculous." His firm did not

Gaming watchers are expecting up to five new issues from the sector over the next couple of months, bringing possibly as much as $1 billion in paper. Boyd Gaming announced a $200 million senior bond offering last Thursday, and high rollers believe three or four others are either planning an offering or weighing the market. Buysiders have shown a strong appetite for the paper: gaming paper traded 200 basis points wide of the high-yield average in the middle of 1997, and has steadily improved to its present position, approximately 280 basis points inside of high yield, according to Eric Matejevich, gaming analyst at Merrill Lynch. Gaming has been seen as a recession-proof industry because most M&A in the sector dried up early last year, leaving companies with strong free cash flow. While some investors are questioning that view since a recent earnings miss by Harrah's Entertainment, others remain eager for a place at the tables. Jacques Cornet, gaming analyst at CIBC World Markets, thinks the secondary market can handle $1 billion over two months without significant spread widening.

Michael Jordan, a senior corporate bond salesman and managing director at Merrill Lynch, left late last week and will be working in a similar capacity at Deutsche Bank Securities in New York. Officials close to the situation say Jordan will not be replaced at Merrill, and his accounts will be turned over to current sales executives. Jordan reported to Frank Corcoran, managing director and head of investment grade sales in New York, who declined comment. At Deutsche Bank, Jordan will report to Tony Britton, managing director. Britton referred calls to a spokesman, who declined comment. Jordan could not be reached for comment.

Rittenhouse Financial Services has hired Roger Early, former ABS portfolio manager at Delaware Investments, as its new v.p. investment-grade portfolio manager and market strategist. Early will report directly to John Waterman, chief financial officer of Rittenhouse, a Radnor, Pa.-based firm affiliated with Nuveen Asset Management. Based in Chicago, Nuveen has $61 billion under management.