Payden & Rygel Investment Management is looking to buy lower-tier investment-grade corporate bonds on the view that economic growth, while not robust, is strong enough to allow companies to pay off their debt. Scott Weiner, managing principal of $16 billion in taxable fixed income at the Los Angeles-based investment manager, likes the triple-B and single-A sectors of the corporate bond market because "we like the credit quality of triple-Bs and their yield advantage over Treasuries." He will make the purchases with new cash. The buys will not alter the firm's 31% exposure to corporates. In other parts of the bond market, Weiner favors lower coupon mortgage-backed securities. "We like the lower coupons at the expense of the higher coupons," he explains, because prepayment risks are lower in the bonds that carry lower coupon payments. MBS accounts for 34.5% of the portfolio.
Payden & Rygel uses the Lehman Brothers Aggregate Bond Index as its benchmark and is flat to the index with a duration of 4.6 years. "Until we see economic growth beginning to take off, we will keep out duration relative to the benchmark," Weiner explains. In terms of allocations, Payden & Rygel has 4% in asset-backeds, 2.5% in emerging markets, 5% in high yield and 13% in Treasuries. The remainder is in cash and cash-like securities.
