Chelsea Management Company is looking to gradually buy up to $150 million in short-term Treasuries as part of an overall strategy to reduce credit risk and shorten duration. Tom Techentin, president and manager of $500 million in fixed income, says he plans to move 30% of the portfolio into three- and five-year govvies if and when yields rise. For example, Techentin says he will wait until the yield on five-year T-bills reaches 3.6%, which he thinks will happen as the economy continues to improve and bond prices fall. The five-year note was at 3.16% on Nov. 18.
To fund the move, Techentin would sell longer-term corporates and agencies. "We want governments to get more attractive, but we're not quite there yet," he says. Specifically, Techentin says the firm will look to sell bonds of Ford Motor Co. and other auto issuers. Standard & Poor's recently downgraded Ford's unsecured long-term debt rating to triple-B minus, one notch above junk status. The move into Treasuries will also reduce the portfolio's average duration from six years to five or four years.
Taxable agencies currently account for 65% of the portfolio and the remaining 35% is in corporates. Once the move into Treasuries is completed, govvies will account for 60-70% and the rest will be in corporates of companies in the manufacturing sector or in cash. The portfolio is run against the Merrill Lynch five- to seven-year index.
