FUNDVIEW-Time ripe for convertibles, corp bonds-SocGen

* Likes telco, utilities, pharma bonds

* Eyes companies best able to restructure debt

* Not keen on insurers with U.S exposure, junior financials

By Martin de Sa'Pinto

ZURICH, May 11 (Reuters) - Corporate bonds and convertibles could perform strongly this year even if the recession deepens, Societe Generale (SOGN.PA) Asset Management credit portfolio head Gregoire Pesques told Reuters on Monday.

Consequently, investors who wait for corporate default rates to peak before buying risk missing the best part of any rally, although they should choose securities with care, Pesques said.

"There has been a big rally in credit spreads in the last two months, even though the recession is not over and default rates could still climb," said Pesques.

"While default rates are a lagging indicator, people usually wait for them to peak before investing in credit."

In the current crisis, scarce liquidity, not poor credit quality, sank bond prices. Now, fiscal stimuli have restored some liquidity, and corporate bonds have reaped the benefits.

Bond spreads over treasuries -- or the amount the bonds pay over treasuries of similar maturity -- have begun to tighten across many sectors and in many markets. For example, the Markit iTraxx Europe index ITEEU5Y=GF, which tracks spreads of investment grade bonds, was 124 on Monday. This means the bonds pay on average 124 basis points more than treasuries, well down from almost 200 in March although still way above the 2004-2007 average of under 40.

CHOOSING CAREFULLY

Even so, investors should exercise caution in what they buy, said Pesques, noting that some bond spreads remain volatile.

Rather than looking for a broad rally, investors should focus on specific sectors. Pesques said he liked bonds in telecoms such as Telefonica (TEF.MC), KPN (KPN.AS) and France Telecom (FTE.PA) and utilities, including EDF (EDF.PA).

His pharmaceuticals picks include Roche (ROG.VX) and Sanofi-Aventis (SASY.PA) while in senior financials he has chosen BNP Paribas (BNPP.PA), Santander (SAN.MC) and Lloyds (LLOY.L).

Pesques said he was less bullish on insurers, especially those with U.S. exposure, and said there may also be weakness among consumer retailers and banks with large retail banking units as the recession continues and unemployment rises.

Security selection will also be important, since rallies will not necessarily be sector-wide, and each sector will have its stars and its laggards, Pesques said.

"Market risk is still there, but issuer risk is getting more important, and the bottom-up aspect will increase significantly," said Pesques.

He said he is seeking out companies best able to restructure in order to lower their cost of capital.

"Fixed income securities of companies buying back their own high-yielding bonds at attractive prices are a good buy. Their actions show they have the support of shareholders and access to liquidity," Pesques said.

"Debt restructuring will be the leading indicator of bond performance for companies that can achieve this, and will be widely needed if the market is to recover," he said.

(Editing by Simon Jessop)