Taplin, Canida & Habacht will swap out of short-term Treasuries into corporates on the view that the Enron-related worries have caused corporate spreads to widen more than justified, and that Treasury prices are going to decline with the improved economy. Bill Canida, portfolio manager with the Miami-based shop, says he will wait for 30-year auto sector corporate bonds, such as Ford Motor Corp., to reach a 300 basis points spread over Treasuries before moving. As of last Monday, those spreads ranged between 270 and 280 basis points. He declined to specify exactly how much he would move.
Canida says he will buy corporates with 10- to 30-year maturities as he anticipates a rally would be more significant on the longer end of the credit spectrum. He is looking into buying the Ford Motor Corp. 7.45% notes of '31 (Baa1/BBB+) because, in spite of the company's tire liabilities, the bad news has already been factored into the credit's price and rating. Last Monday, the notes yielded 268 basis points over Treasuries. Canida will also look into buying the CIT Group 7.62% notes of '05 (A2/A+), the consumer finance unit of Tyco International, and one of the four units set to be spun off. Canida believes that the market accounting concerns on this bond are misplaced and that the bond, which yielded 290 basis points over Treasuries last Monday, compensates for any future risks.
Canida manages a $2 billion fund with an asset allocation of 50% corporates, 30% agency pass-throughs and 20% Treasuries. The fund duration is 4.30 years, versus 4.56 years for its bogey, the Lehman Brothers aggregate index.
