Patterson & Associates is ready to swap 5% of its portfolio, or $40 million, out of commercial paper into agency debentures, should agency bond spreads on one-year rates widen by an additional 10 basis points, and by 15-20 basis points for two-year paper, says portfolio manager Linda Patterson. Patterson adds that this is not likely to occur soon, because, even if Treasury supply increases, yields are likely to fall further because of the increased demand for Treasuries as a flight-to-quality response due to the recent terrorist attacks. Patterson says she is currently buying agency paper yielding 2.50-2.60% for the one-year term, and 3% for the two-year term.
Patterson manages a $800 million portfolio of short-term notes for the Austin, Tex.-based asset management firm. The asset allocation is 70% agencies debentures, 15% Treasuries and 15% commercial paper. She says that the firm does not use any particular benchmark outside the performance levels of Treasuries themselves, and notes that the duration is 200 days or less.
