Taplin, Canida & Habacht will swap $200 million, or 10% of the firm's corporate bond portfolio, out of double-A rated financial bonds into triple-B cyclical corporates. Bill Canida, portfolio manager with the Miami-based firm, reasons that the economic recovery will cause cyclical bond spreads to tighten while rising interest rates will adversely effect banks and brokerage names. There is no particular trigger for this move besides the assumption that the economy is bound to recover soon. Canida says he is selling double-A five- to 10-year financial bonds at spreads over Treasuries inside 50 basis points. His buying target for the triple-B cyclical 10-year bonds is 500 basis points over the curve or higher. Those are trading at 400 basis over the curve as of last week.
Canida may look to add to his holdings of Ford Motor Co. 8.90% notes of '32 (Baa1/BBB). He bought those at 650 basis points over the curve. On Monday, the notes were at 518 basis points spread over Treasuries. He may also add to the Delhaize America 8.12% notes of '11 (Baa3/BBB-). He bought those at 650 basis points over the curve. The paper was yielding 716 basis points over Treasuries on Monday. To finance those purchases, Canida is considering selling the Bank of America 5.25% notes of '07 (Aa2/A+) or the Bear Stearns 7.62% bonds of '09 (A2/A).
Canida manages a $2 billion corporate bond fund. He allocates 50% to industrials, 40% to financial corporations and 10% to utilities. At a duration of 5.20-years, the fund is slightly short its bogey, the 5.63-year Lehman Brothers corporate index.
