Value Line Asset Management will add mortgage-backed securities to a $120 million fund that invests in MBS, Treasuries and agencies. Jeff Geffen, fund manager in New York, said he will use new cash and swap some three-year Treasuries for new MBS purchases. He declined to quantify the purchases and specify the type of MBS. The fund tracks the Lehman Brothers Intermediate Government Index and currently has 7% in cash, 46% in MBS, 38% in agencies and 9% in Treasuries.
Geffen predicted the market will be in a trading range, with the yield on 10-year Treasuries staying between 4.20% and 4.75% for the next six months, even though there could be some temporary volatility with the 10-year yield hitting 5%. In general, MBS tend to perform well when the government market is range-bound, he said.
In this market, he said sector and security selection is more important than duration. He barbells his portfolio to maximize yield. The positioning on the curve is more important than duration, Geffen said, adding he will take bets at intermediate parts of the curve.
