Seeing evidence of a decline in the market for 10-year U.S. Treasury notes ten days ago, R. Medder & Associates, a money manager in Dublin, Ohio, moved $60 million 10-years into T-bills, according to portfolio manager Joe Zarr. Zarr, who runs $420 million in taxable fixed-income, says the investment in T-bills is a temporary measure to guard against principal devaluation while yields on the 10-year are up. He will watch for a variety of indicators, but particularly a turnaround in 90-, 150-, and 200-day moving averages for the 10-year, before buying back the $60 million (and perhaps eventually another $60 million).
Zarr needs to see evidence that the moving averages are rising, or close to rising, before reversing. "I don't want to leave the impression that we'll wait 'til all three are up to be in the market, but if all three are down, we definitely won't be in the market." He will also look at other factors, such as the overall yield curve, inflation, and real rates of return, before making a move.
Since this most recent shift, Zarr now has some $120 million invested in T-bills for individually managed accounts and an U.S. government bond fund. The other $300 million is in a money market fund, strictly to meet client liquidity demands. In terms of asset allocation, he has approximately 50% allocated to commercial paper, 30% to investment grade corporates due to mature within thirteen months, as required by a Securities and Exchange Commission rule governing money market funds, and 20% to overnight repos. He does not use a benchmark.
