AMR Investment Services is buying two-year agency debentures and corporate bonds, and selling them when it reaches 13 months to maturity. In February, assuming a 50 basis point spread between one and 1.5-year Treasuries, the firm will sell the roughly $450 million Fannie Mae 2.30% debentures of '04 that it bought last July, according to Bonnie Mitra, portfolio manager of $5 billion in fixed-income.
Mitra says he expects the short-end of the Treasury curve to stay put, or perhaps rally, if the Federal Reserve cuts interest rates. He says economic data, apart from housing, looks weak, and he expects sub-par growth to continue for the foreseeable future.
AMR is also buying high-quality fixed-rate corporates for the same roll-down effect. Mitra says the firm is focusing primarily on bank holding companies such as Citicorp, Wells Fargo, Bank of America and Wachovia. He says these credits offer a nice spread to Treasuries and are not so vulnerable to further economic weakness as industrial credits.
At a duration of 0.7 years, the Fort Worth, Tx., money manager is long its bogey, the six-month T-bill. AMR allocates 53% to corporates, 23% to overnight repurchase loans, 16% to U.S. government securities and 8% to mortgage-backed securities.
