Campbell Newman Asset Management is seeking to sell two- to three-year Treasuries in its intermediate and broad market portfolios in order to buy five- or six-year Treasuries. Jeff Bryden, a portfolio manager overseeing $325 million in taxable fixed-income, says the firm wants to take advantage of the steep slope in the short part of the curve. On June 21, two-year Treasuries yielded 2.86%, versus 4.04% for five-year Treasuries, and 4.77% for 10-year Treasuries. Bryden says the trade could represent up to 5% of the assets in the intermediate and broad market portfolios he oversees. He would not be specific about a trigger for the trade, saying only that it is something he is actively considering, depending on his perception of the economy and the holdings in individual portfolios.
Campbell Newman is also eyeing the auto sector for its portfolios that are not already fully invested in seven- to 10-year issues from the Big Three. Bryden says that if he sees stability in the stock market and other areas of the economy, perhaps three weeks from now, he may execute a box trade--swapping out of two- to three-year autos to buy seven- to 10-year paper, while shortening Treasury holdings to maintain a neutral duration. Bryden says that he prefers Ford Motor Co., which trades at a slight premium to General Motors. While the firm owns some Daimler-Chrysler, he says he wants to stick with the market leaders. Before executing such a trade, however, he wants to see clear signs that the economy is stabilizing. Last Monday, Daimler Chrysler's 7.3% notes of '12 were bid at 169 basis points over 10-year Treasuries, General Motors' 7% notes of '12 were at 202 basis points over and Ford's 7.25% notes of '12 were 228 wide of the 10-year. All three issues are rated A3/BBB+.
At a duration of 3.55 years, the Mequon, Wis. money manager's intermediate and broad market portfolios are generally short their main bogey, the Lehman Brothers intermediate/government credit index. Broadly, the portfolios have 50% in corporates, 20% in Treasuries, 15% in agencies, 10% in asset-backed securities and 5% in structured collateralized mortgage obligations.
