HSBC Investment Management intends to trade U.S. Treasuries opportunistically as a mixture of U.S. economic data creates opportunities in the market. Tim Sullivan, London-based senior director of global fixed income, and responsible for £2.2 billion in assets, says the U.S. "keeps coming out with some curious data, creating chances to put on trades."
The firm had been very slightly overweight duration until two weeks ago, but sold its 7.5% of '16 U.S. Treasuries which were yielding 4.61% last Monday, based on better-than-expected unemployment data. That trade accounted for 10% of HSBC's $160 million bond fund. Sullivan says if there is a bit of equity market weakness, he would consider buying back the same bonds at a higher yield.
In portfolios permitting non-benchmark currency bets, Sullivan is overweight euros--by buying five-year Bunds. If the euro goes to 1.09 versus the dollar, he will sell the position. The position accounts for about 30% of the bond portfolio.
Sullivan has also been selectively buying new issues. Recently, he bought Royal Bank of Canada's 3.5% of '07 and Bank of America's 4 7/8% of '13, which he views as improving credits. He says he will continue to look at the new issue market, however, getting a balance between income and guarding capital will become increasingly difficult as yields fall, new issues will have smaller and smaller coupons.
