Passage of the North American Free Trade Agreement set phones ringing yesterday at a California-based mutual fund called Pilgrim All-Americas Government Income Trust.
Nafta's passage lessened investors' currency risk worries with regard to Mexican debt, prompting the calls, said Palomba Weingarten, chairman and chief executive officer of the Pilgrim Group in Los Angeles.
Pilgrim has $3 billion under management in 19 mutual funds, including Pilgrim All-Americas.
"Any time you open a market up, you are going to provide for much greater growth in both domestic economies as they are able to export and we are able to import," Weingarten said.
Launched this month, the fund consists of a minimum of 50% of U.S. government securities with an average duration of four years, a maximum of 25% of Mexican government securities, a maximum of 15% of Mexican investment grade corporate debt, and a maximum of 10% Argentine government securities.
The fund does not invest in Canadian securities because "the spreads are too narrow relative to the potential for currency risk," Weingarten said.
She finds Mexico and Argentina particularly attractive because of their relatively low inflation rates, political stability, and high interest rates.
Mexico is expected to post a 7.5% inflation rate for 1993 and a rate of between 5% and 6% in 1994, Weingarten said. The company also has a balanced budget and gross domestic product growth between 3% and 3.5%. The rate of the Mexican Treasury's year bill is 12.5% and the peso continues to grow stronger, she said.
Weingarten said that in Mexico, Pilgrim has an affiliate of Banco Nacional de Mexico, one of Mexico's largest commercial banks, as a subadvisor. The link enables Pilgrim to keep a close eye on currency fluctuations, she said.
In Argentina, inflation has dropped dramatically in the past two years, which Weingarten expects to continue. The nation anticipates 9.5% inflation for this year and 5% in 1994. The government's five- to 10-year securities yield in the 10% range, she said. In addition, a radical party has decided to side with president Carlos Saul Menem, which bodes well for his re-election chances, and in turn the economic and political stability of the country, Weingarten said.
"So you have ... very good dynamics," said.
Junk Deals Ahead
At least five high-yield offerings totaling $710 million are expected be priced between today and next week, syndicate sources said.
Remington Arms is expected today to offer $100 million of 10-year senior subordinated notes through lead manager Merrill Lynch & Co.
Price talk on the deal, a private placement, is in the 9 5/8% area, a source familiar with the issue said. The deal will be done as a Rule 144A transaction with registration rights.
Next week, deals by HS Resources Inc., Burlington Motor Holdings Inc., Specialty Equipment Cos., and Wheeling-Pittsburgh Corp. are expected, syndicate sources said.
HS Resources is reportedly offering $75 million of senior subordinated notes due 2003 through lead manager Lehman Brothers. Price talk was unavailable yesterday.
Burlington Motor Holdings is expected to sell $100 million of senior subordinated notes due 2003 through lead manager Merrill Lynch. Price talk on the offering is 11 1/4% to 11 1/2%.
Specialty Equipment is expected to sell $185 million of senior subordinated notes due 2003, while Wheeling-Pittsburgh is expected to sell $250 million of senior notes due 2003. Merrill Lynch will be lead manager on both offerings. Price talk on the Wheeling-Pittsburgh deal is 9 1/8% to 9 3/8%.
In other news, J.J. Kenny Co. Inc. and EJV Partners L.P. have formed a marketing and distribution alliance to "provide comprehensive and timely evaluation services on a wide range of taxable securities to the investment community," J.J. Kenny said in a release this week.
Starting Jan. 1, the alliance, called Kenny/EJV Taxable Evaluations, will combine the market delivery services and portfolio pricing systems of Kenny S&P Evaluation Service with EJV's taxable securities database, analytics software, and direct access to the primary market, the release says.
Securities that will be evaluated and disseminated to alliance subscribers include fixed- and adjustable-rate mortgage-backed securities, collateralized mortgage obligations, and corporate, government, and agency bonds, the release says.
"By pooling the critical skills of Kenny's S&P and EJV's evaluations professionals with our organizations' state-of-the art analytical tools and information delivery systems, we provide a service of unparalleled accuracy and breadth to the taxable fixed-income markets," James R. Quandt, president of McGraw-Hill Inc.'s new Financial Services Information Services Group, said in the release.
In secondary trading, spreads on high-grade issues tightened two to three basis points overall on the Treasury market's decline. One trader said prices fell about 1/2 point in sympathy with Treasuries, which declined more than 1/4 point. Corporate trading was extremely light, however. he said.
Junk bonds ended unchanged.
Korea Electric Power issued $1.35 billion of 6.375% global bonds due 2003. The noncallable bonds were priced at 98.551 to yield 6.575%, or 90 basis points over comparable Treasuries. Lehman Brothers was lead manager. Moody's Investors Service rates the offering Al, while Standard & Poor's Corp. rates it A-plus.
The offering was said to have been a blowout.