Fiduciary Trust International is looking to shift assets out of U.S. Treasuries, agencies and high-quality corporates into 10-year German Bunds. Michael Materasso, global head of fixed income overseeing some $15 billion in taxable bonds, says Bunds have lagged U.S. Treasuries during the most recent flight to quality. While 10-year Treasuries and Bunds both yielded 4.0% in January, Treasuries were yielding 3.62% last Monday versus 3.84% for Bunds. Materasso sees Bunds outperforming Treasuries in a recovery scenario if geopolitical tensions ease, as he expects they will. "If the war is quick, we have a feeling we'll see a rally in stock market (maybe short-lived) and while that will lead to a sell-off in Treasuries, we feel it would have minimal effect on the German bond market," he says.
Fiduciary recently moved some 5% of its assets across a number of portfolios into Bunds, and has the ability to extend the trade, though Materasso declines to say how much more the firm might add. The firm will look for further signs of weakness in the German economy as a trigger for the move.
Fiduciary has also moved to a "butterfly" position in its mortgage-backed securities portfolio, selling Fannie Mae 6% pass-throughs and buying 5.5% and 6.5% coupons, as Materasso argues the 6% bonds were very rich relative to 5.5s and 6s.
The New York-based firm's fixed-income assets are split evenly between U.S. and foreign investments. The U.S. portion is neutral to one of its main bogeys, the 3.8-year Lehman Brothers aggregate. It includes 43% to corporates, 35% to MBS, 15% to Treasuries, 5% to agencies and 2% to high yield.
