Dan Shackelford, portfolio manager with T. Rowe Price, says his firm is going to swap $200 million from intermediate Treasuries into credit products, on the view that interest rates will remain range bound and that the firm's priority is to add yield to the portfolio. Over the past two weeks the fund swapped $500 million ($250 million each into corporates and mortgage-backed pass throughs). Shackelford says the move will continue over the next two weeks, as the firm is going to sell an additional $200 million worth of Treasuries which it will evenly allocate to agencies and corporates. Shackelford says that the only real consideration for this move was a reach for additional yield.
Shackelford says his firm anticipates a corporate rally which is why the corporate allocation is increased. He would not disclose the names of the companies his firm purchased, other than the purchases took place in the telecom and utilities sectors and that the bonds purchased were in the 10-year maturity range. He says that this part of the curve is attractive because he sees the curve remaining positively sloped for some time.
In addition, the firm bought 15- and 30-year 6.50-7% Fannie Mae backed pass-throughs for liquidity purposes. The firm predicts that volatility in the mortgage market should subside over the next three- to six-months, as the worst of the prepayment surge is over.
Shackelford manages a $5 billion portfolio out of Baltimore. The asset allocation is 36% agency MBS, 34% corporates, 12% Treasuries, 8% agency debentures, 8% asset-backed securities and 2% commercial mortgagee-backed securities. With a 4.75-year duration, the fund is slightly longer than its 4.50-year bogey, the Lehman Brothers aggregate index.
