Piedmont Capital Management is seeking to capture gains in its Household International 6.5% notes of '06 and 6.47% notes of '08. The bonds rallied from 92 to par after HSBC Holdings reached an agreement to purchase Household. Piedmont owns just under $1 million of Household bonds, and will sell them if it receives a bid of 100.5 or 101, says Walter Campbell, portfolio manager of $100 million in taxable fixed-income.
Piedmont will look to reinvest the proceeds from the recently called 6% Federal Home Loan Mortgage debentures of '14. Campbell says the firm may buy a new agency issue--the 15-year 5.85% debentures from Federal Home Loan Bank. One issue Piedmont currently owns and would add on weakness is the Duke Energy 8% notes of '19, which were bid at 90 last Monday. Campbell believes the credit is fundamentally sound, despite ongoing investigations into its trading practices. Other names the firm would consider buying if they trade down on negative news include Electronic Data Systems, Motorola Inc. and Ford Motor Co. However, Campbell says Piedmont will not increase its overall corporate bond allocation until late next year.
At a duration of 11 years, the Hilton Head, S.C., firm is long its bogey, the 10-year Lehman Brothers government/corporate index. It allocates 70% of its assets to U.S. agency debentures and 30% to corporates.