AMR Investment Services has been adding corporates on the view that MBS and ABS are currently oversold due to concerns about pre-payment risks, according to Bonnie Mitra and Pat Sporl, senior portfolio managers. Mitra, who manages a $100 million fixed-income portfolio for the Dallas firm, is trying to increase his corporate allocation by five to six percent by selling ABS and MBS. Using some of the proceeds from this reallocation, AMR recently bought into the five-year financial sector, including Wells-Fargo (Aa2/A+) and Citigroup (Aa2/AA-), both of which were offering yields of 100 basis points over Treasuries. In addition, they added some 10-year automobile paper from Ford Motor Company (A2/A) and some 30-year paper from General Motors (A2/A), both of which were yielding nearly 200 basis points over comparable Treasuries.
Mitra foresees the Federal Reserve easing interest rates by 50 basis points at the March 20 meeting, which should be followed by two other cuts of 25 basis points each. The firms asset allocation is 38% in Treasuries, 32% MBS and ABS, and 30% in investment-grade corporates. The firm uses the Lehman Brothers Aggregate as its benchmark, and did not provide its duration.
