Chelsea Management Co. is looking to sell some $50-100 million of callable bonds with longer (roughly 10-year) maturities. Tom Techentin, portfolio manager of $400 million in taxable fixed-income, is concerned that interest rates may spike upward, and issuers will not want to call their bonds, having already locked in a low coupon. Techentin does not want the firm's portfolios to have too long a duration as he is concerned about inflation pressures by year-end. Most of the callable bonds Chelsea owns are agency debentures, and Techentin says a typical trade he would like to make would be to sell a 10-year issue callable in two years, in order to buy a five- or six-year non-callable issue. "We're trying to get two years or greater call protection. You give up a bit of yield but we think its worth it," he says. Chelsea is ready to make the trades as soon as it can find the bonds it is looking for, Techentin says. The firm does not favor any particular agency's debt, he says. He expects the whole trade to take two to three months.
At a duration of eight years, the Los Angeles money manager is 33% long one of its main bogeys, the six-year Lehman Brothers Aggregate index. The firm allocates 52% to corporates, 37% to agencies and 11% to Treasuries.
