Fiduciary Trims Triple-Bs, May Cut Duration

Fiduciary Trust Company International has begun reducing its exposure to triple-B credits and may shorten its overall duration if yields on the 10-year Treasury drop below 4% in the next few months.

  • 07 Jan 2005
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Michael Materasso
Fiduciary Trust Company International has begun reducing its exposure to triple-B credits and may shorten its overall duration if yields on the 10-year Treasury drop below 4% in the next few months.Michael Materasso, global head of $16 billion in taxable fixed income in New York, said if yields dip again, he may shorten his portfolio's duration in the 10- or 30-year part of the curve.

Materasso said that yields on the 10-year may stay in the 4% to 4.4% trading range for the next few months, although he said 10-year yields may rise to 4.75% by June. The benchmark note was at 4.25% on Jan. 3. He declined to specify by how much he would lower duration and said he would pick sectors to trim duration based on how quickly and the reasons why yields reached 4%.

Materasso began trimming his overweight to triple-Bs in November because of the tightening of corporate spreads. He has been shifting assets to the mortgage sector, specifically premium agency pass-throughs, where he has been underweight. He declined to say how much he was invested in corporates and by how much he would cut his overweight there.

Compared to its benchmarks, the manager's portfolios are somewhat overweight corporates, neutral in mortgages, underweight Treasuries and largely underweight agencies.

"[Our underweight] in agencies is due to the Fannie Mae issue to a small extent, but more because we anticipate that swap rates will rise and agency spreads are very much tied to swap rates," Materasso explained. The manager uses the Lehman Brothers Aggregate Bond Index as his main bogey, but also uses the Lehman Brother Intermediate Government/Credit Index, and the Citigroup World Government Bond Index and Lehman's Global Aggregate Index for his global accounts.

  • 07 Jan 2005

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