Columbia Partners, a Washington, D.C.-based money management firm, has been extending duration on the expectation of another 25 basis point rate cut by the Federal Reserve and a decline in long-term rates due to a worsening economic picture. Bill Wivel, portfolio manager of some $600 million in taxable fixed-income, says he has been buying 30-year U.S. Treasuries and five-, 10- and 30-year high-grade corporates in the financial, drug and consumer products sectors. The moves extended duration from five years in early June to about 5.20 years as of last Monday. The new duration put the firm at 111% of its most common benchmark, the Lehman Brothers Aggregate, which was at 4.7 years last Monday.
Wivel cites a variety of factors, such as rising jobless claims and declining prices on imported goods, as evidence that the economic picture is worsening. He is concerned that if employment continues to suffer consumer confidence will start to fall. He says that if the economy does not improve in one to two months, he will extend duration further by buying Treasuries, though to no more than 120%.
Columbia allocates 34% to U.S. Treasuries, 30% to corporates, 27% in mortgage-backed securities, 7% to U.S. agencies and 2% to asset-backed securities.