Citigroup Investments is hard-pressed to find value in the corporate bond market and is finding it difficult to put new money to work, said Mike Plage, a trader who manages $23 billion in high-grade and high-yield corporate bonds in Hartford, Conn. "Everything feels full; it's hard to find value," he stated. The fund has been putting money to work in the secondary market, in Real Estate Investment Trusts, in mezzanine products and in commercial mortgage-backed securities in its hunt for value, he added. "We've seen net negative issuance over the last three months, so it's tough to reinvest new maturities. We've been turning to structured products in an attempt to find value," he explained. Plage declined to elaborate on recent structured transactions in which he has participated.
The fund is currently sitting on some cash but is not chasing new deals, Plage noted. "We're looking to put our cash to work but we're in no hurry. Our cash balance is manageable," he said. Citigroup Investments has been selectively participating in new issues, but a lot of them are tightly priced, stated Plage. He highlighted the recent Prudential Financial remarketing issue as attractive and noted the fund is participating on a name specific basis. "There is no sector call; everything is depressed," he said. The fund's benchmark is customized, based on the Lehman Brothers Aggregate Bond Index. Relative to the Lehman Aggregate, the fund is underweight autos and telecom, added Plage. He noted the underweight positions are more of a reflection of risk management than a credit call, meaning that it is too risky for the $23 billion fund to take a full market weight position in Ford Motor, because it would be a $1 billion allocation which by virtue of its size is too risky, not because the fund is negative on Ford's credit quality. However, the fund also holds zero AT&T Corp. bonds, a decision which does reflect a credit call, Plage stated. He added the recent bad employment numbers were fairly painful.
