Texas Manager To Shift Out Of Agency Bullets Into Callables

  • 28 Jul 2002
Email a colleague
Request a PDF

Bob Smith, portfolio manager at Sage Advisory Services, says he will shift 10% of the firm's portfolio, or $100 million, from bullet to callable agencies, as he anticipates interest rates will rise early next year. The move is a defensive play: when interest rates rise, negatively convex callable debentures will decline in price less quickly than their bullet counterparts, says Smith. In addition, because interest rates are at an all-time low, selling expensive bullets and buying cheap callables makes sense. Smith will initiate the move immediately to take advantage of this arbitrage.

One example of a trade is the purchase of the five-year Federal Home Loan Bank callable bond, which is non-callable for two-years and which, last Monday, traded at 70 basis points over the curve. Another potential buy is the FHLB seven-year bond, which also has two years of call protection, and which, last Monday, traded at 80-85 basis points over Treasuries. Smith says he will avoid buying Freddie Mac or Fannie Mae debentures and may, on a case-by-case basis, consider selling their bullets. He is concerned that efforts by Congressman Richard Baker (R-La.) to reform Fannie Mae and Freddie Mac may compromise the ability of those issuers to raise money in the market.

Based in Austin, Texas, Smith manages a $1 billion portfolio. He allocates 40% to agencies, 11% to corporate financials, 10% to bonds of industrials companies, 10% to Treasuries, 6% to international corporates, 5% to collateralized mortgage obligations, 5% to asset-backed securities, 5% to agency pass-through, 4% to corporate utilities and 4% to cash. With a 3.30-year duration, the fund is shorter than its benchmark, the Lehman Brothers government/credit intermediate index, which has a 3.64-year duration.

  • 28 Jul 2002

All International Bonds

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Jul 2017
1 Citi 244,235.70 910 8.87%
2 JPMorgan 223,767.95 1021 8.13%
3 Bank of America Merrill Lynch 211,276.97 750 7.68%
4 Barclays 166,062.82 634 6.03%
5 Goldman Sachs 162,877.27 537 5.92%

Bookrunners of All Syndicated Loans EMEA

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 21 Jul 2017
1 HSBC 25,385.87 103 7.10%
2 Deutsche Bank 25,125.19 81 7.03%
3 Bank of America Merrill Lynch 22,023.57 59 6.16%
4 BNP Paribas 18,766.65 109 5.25%
5 Credit Agricole CIB 18,157.63 105 5.08%

Bookrunners of all EMEA ECM Issuance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • 18 Jul 2017
1 JPMorgan 12,578.87 55 8.17%
2 Citi 11,338.07 71 7.36%
3 UBS 10,682.06 44 6.93%
4 Goldman Sachs 10,419.53 53 6.76%
5 Morgan Stanley 10,194.88 57 6.62%