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| Chris Mahony |
New York-based J. & W. Seligman is adding floating-rate corporate bonds and implementing a barbell strategy to take advantage of rising interest rates. Chris Mahony, manager of $1.5 billion of investment-grade bonds, most recently bought BellSouth floaters because it is a safe name that will float higher, he said. Mahony explained the trade makes sense in the current environment with rich spreads because he is looking for ways to pick up incremental yield over owning overnights in the cash market. The manager also recently increased his holdings of General Motors bonds when the auto maker's spreads widened prior to the company being downgraded. He bought the bonds because the company had been put on credit watch and spreads had widened out in general, he said.
The manager switched from a bulleted strategy to a barbell one when he first got signals that the Federal Reserve would raise rates. Since then he has gone more defensive on his duration, going from 100% to 90% of the benchmark's duration.
The manager's current barbell strategy focuses on maturities shorter than two years and longer than five years. "We're in a curve flattening trade, so we expect the front end of the yield curve to rise faster than the back end," Mahony said.
The manager is invested in 20% Treasuries, 30% agencies, 15% mortgage-backed securities and 2-3% cash, with the balance in corporates. Mahony said he does not anticipate changing the allocations in the near future. He uses various benchmarks, including the Lehman Brothers Aggregate Bond Index.
