Veranth emphasizes that comparable mortgage-backed securities are more attractive than Treasuries and that he would consider short-term mortgages with above-market coupons, such as 6% or 6 1/2% and carrying 10- to 15-year maturities, as opposed to traditional 30-year MBS. At present, 60% of the fund is invested in equal amounts of Treasuries, agencies and MBS. The remaining 40% is held in investment-grade corporate bonds.
Separately, Veranth says he also plans to shorten the duration of his government bond portfolio to reduce interest-rate risk. He adds he expects prices on long-term Treasuries will decline most if and when rates move up; as a result, he plans to replace long-term Treasuries with short-term ones.