Margo Cook, portfolio manager at BNY Asset Management, will rotate 5% of the firm's portfolio, or $250 million, from Treasuries into corporates. The firm will look at the geopolitical environment and initiate the move if Treasuries rally as an immediate response to a war with Iraq, which Cook says is likely to be the case. She says a trigger for the rotation would be if the 10-year Treasury yield fell to 3.5% from last Monday's 4%.
Cook will cautiously add to corporates anticipating an improvement of the economy in the second half with tighter corporate spreads looking forward. She says the idea is to slowly emphasize spread products versus non-spread products. She declined to name particular corporate bonds she is reviewing, but says she likes the cable sector because cable companies enjoy a great deal of pricing power. In addition, those firms offer Internet services, which help them better manage their debt. She notes that she will likely add to existing holdings of Comcast Cable (Baa3/BBB) and Cox Communications (Baa2/BBB). She sees a flattening of the yield curve this year, with rates beginning to rise. As a result, she will sell the intermediate part of the Treasury curve, with bonds maturing in the four- to seven-year range.
Cook manages a $5 billion fund out of New York. She allocates 39% to mortgage-backed securities, 27% to corporates, 14% to Treasuries, 10% to agencies, 9% to asset-backed securities and 1% to cash. At a 3.90-year duration, the fund is slightly long its bogey, the Lehman Brothers aggregate, which has a 3.85-year duration.
