Manning & Napier Advisors, Inc. is selling Treasuries to purchase high-quality corporates it expects to weather the slowing economy, along with agencies, whose current spreads are wide on a historical basis. George Nobilski, president of the firm's fixed-income division, which runs $3 billion in taxable bonds, says his recent purchases include the 10-year paper of Corning (A2/A) and Pepsico (A1/A), whose respective spreads over Treasuries are 150 and 125 basis points, and five-year Diageo Plc (A1/A+), at 150 over."The names we're buying are on the conservative side," he says. "We're starting to pick and poke at some of those values."
Nobilski is also buying five- and ten-year agencies, which are trading at 60 and 80 basis points, respectively, over Treasuries, versus historical spreads of around 25-40 basis points. "Now you're rewarded for the liquidity costs and slightly less credit quality of those issues," he says. Nobilski adds that he is not sure how much he'll shift into corporates and agencies.
Overall, the Rochester, N.Y.-based firm's portfolio is allocated roughly 45% to Treasuries, 25% to corporates, 15% to agencies and 15% to MBS. Duration is five years, which is long its benchmark, the 4.53-year Lehman Brothers Aggregate Bond Index.
