Lyon Street Advisors has sold about $200 million worth of investment-grade corporates over the past six weeks to buy agencies and Treasuries, thereby locking in the profits from the January rally. Mitchell Stapley, who manages $2 billion for the Grand Rapids, Mich.-based firm sold its lower rated investment-grade paper, but is still overweight after adding corporates in November and December. Stapley sold PotashCorp 71Ž8% notes of '07 (Baa2/BBB), Citibank 75Ž8% notes of '36 (Aa2/AA-), and Ford 7.45% notes of '31 (A2/A), and bought the safer Treasuries and bullet agencies with durations of seven to 10 years.
The firm, which also sold 10-year Verizon paper that was yielding 140 basis points off comparable Treasuries, would consider buying up the corporate paper again if the yields widered to 190 to 200. Stapley believes the rally is not yet over, and 30-year Treasury spreads, that are currently at 5.41%, will reach a low of 5.25%. The firm is long the Lehman Brothers Aggregate index by 1.03 years with a duration of 5.7 years and its portfolio is allocated 45% investment grade corporates, 30% Treasuries, 20% agencies and 5% cash.
