Ryan Labs is looking to pick up industrial names in the new issue market on the view the deals will tighten in the long term, according to Mike Donelan, portfolio manager of $2 billion in investment-grade fixed income in New York. "We're looking for issuance not usually in the fold such as industrials that don't have a lot of debt outstanding... Once the bonds are put away even if the primary deal was soft the bid will strengthen just from the fact they never come to market," he explained. Donelan highlighted Ingersoll-Rand as one such issuer he recently bought debt from in a new issue. The manager expects issuance to match the $35 billion of corporate debt maturing this month, though much of it will likely be finance paper.
Ryan Labs is slightly overweight corporates overall. The manager uses a variety of benchmarks including the Lehman Brothers Aggregate Bond Index and is currently 3-5% overweight credit in its Ag accounts, which can get as high as 10%. Donelan noted he is roughly 2% underweight long corporates on the view the long end of the curve does not provide enough spread. "It's not an interest-rate call; I expect to see the corporate curve steepen in reaction to the lack of yield," he explained. Ryan Labs recently pared its long corporate allocation by upgrading its quality in the finance space and reducing its weighting to brokers. "The [collateralized debt obligation] bid is also not there this year and there's no technical support for more liquid names," Donelan added.
Overall, Donelan thinks spreads are tight across the corporate arena but he does think some real estate investment trusts and lower investment-grade homebuilders such as Pulte Homes offer value. Ryan Labs is slightly underweight Treasuries and slightly overweight agencies. "Agencies are slightly cheap to swaps and I don't see a blowing out of swap rates or the end of good technicals," the manager explained. He is neutral mortgage-backed securities and his duration is neutral overall.
