Rayner Associates is buying select secondary corporate credits on the view that their spreads are still lagging the primary market in reacting to the Federal Reserve rate cuts, with investors able to pick up an additional 20-30 extra basis points, according toArno Rayner, chairman. The firm, which manages $150 million in taxable fixed income, is using new money and cash earned from dividends and interest to buy single-A rated or better bonds with durations of eight to 13 years.
Last week it bought the Federal Home Loan Bank's 6 5Ž8% notes of '14 (Aaa/AAA) and the Goldman Sachs 6 7/8% notes of '11 (A1/A+), both with spreads of 160 spread over 10-year Treasuries.
Rayner believes interest rates will be cut in March by at least 25 basis points. He likes Safeway's 71Ž2% notes of '09 (Baa2/BBB), J.P. Morgan Chase's 71Ž8% notes of '09 (A1/A+) and IBM's 83Ž8% notes of '19 (A1/A+). The Marin County, Calif.-based firm declined to break out a specific asset allocation, but Rayner notes its corporate portfolio is entirely investment-grade, with additional positions in AAA stalwarts like agencies and Treasuries. With a duration of 6.7 years, the firm doesn't use a benchmark and won't buy paper with a duration of over 20 years.
