Tom Graff, portfolio manager of around $900 million at Cavanaugh Capital Management, has been moving his money into Treasuries and short callable agencies from corporate bonds. "We've been putting a lot of the new cash that we get recently to work in Treasuries and callables. With the callables, we've been looking to onetime short calls," Graff said.
Graff said the reason that he has invested so heavily in callable agencies and Treasuries is due to the relatively tight corporate bond spreads as of late. "I haven't been looking into any new issue stuff in corporates and agencies. In fact, I have been shorting corporates quite a lot. Our index has an allocation of 20% corporates and right now we are way below that; we're at about 5%," Graff explained. Graff has not had much interest in the new issue market in general lately, choosing instead to add to his existing investments. In August, Graff's allocation to corporates was higher, around 10%. "When we do invest in corporates we try to go for more high quality things, even if we don't hold that many of them," he said.
Graff has also recently been overweighting taxable municipals. "With the way that things have been going in the market lately, you really have to be careful. Sometimes you can find a company that will work for you, but I'm not comfortable with the risk. The taxable muni market takes away that risk," he noted. Graff utilizes the Lehman Brothers Aggregate Bond Index, where he described himself as around one-quarter quarter long his duration.
