Predicting a 5-5.5% unemployment rate by year-end, Furman Selz Capital Management plans to sell 5-8% of his (or $80-130 million) two- to three-year government bonds exposure and buy in the seven- to ten-year range, according to portfolio manager Alan Segars. Segars, who helps manage the firms $1.6 billion fixed-income account, is doing this to increase the duration of its portfolio from 3.7-3.8 to about 4.0 years. He expects the Federal Reserve Board to cut another 50 basis points at its meeting tomorrow, and eventually take rates under 4% before year-end. "There's typically a lag between a fall-off in consumer confidence and a fall-off in consumption...As initial claims rise and unemployment goes up, people will start altering their buying plans." Segars' accounts are benchmarked against the Lehman Brothers Intermediate Government Corporate Bond Index.
Segars currently allocates some 34% to Treasuries and 33% to agencies, most of which are in the seven- to 10-year range. The other 33% is in high-grade (A-or better) corporates. Corporate names he currently holds include Emerson Electric 5.5% notes of '08 (Aa3/AA-) and, when those became scarce, he picked up Unilever 6 7/8% notes of '05 (A1/A+).
