D.L. Carlson Investment Group is in the process of selling its 10-year agency paper and buying three-year corporates on the view that the Federal Reserve is in an aggressive easing mode and the front end of the yield curve will steepen. Doug Robbins, who manages $200 million for the Concord, N.H.-based firm, declined to discuss specific credits, but says he likes finance and banking paper because it benefits from the Fed's easing policies. He believes that by mid-summer the Fed will cut rates another 100 basis points, bringing the Fed Funds rate to 4-4.5%.
"The Fed fell asleep behind the wheel," says Robbins, "and it's going to have to play catch up, easing rates even more than it normally would have, which makes the bond market happy." When the Fed makes a dramatic policy shift it creates 'reflation,' says Robbins, where more money chases the same amount of goods. D.L. Carlson bought agencies last spring after selling 10-year Treasury paper when spreads gapped out 120 basis points, and kept that position until the Fed first cut rates in January. Although he won't specify his portfolio allocation, Robbins says the strategy applies to the majority of the firm's taxable fixed income.
