Bank Leumi U.S.A. will seek to use new cash and some of the proceeds from matured corporate-bond holdings to purchase high-quality asset-backed bonds, including those backed by credit-card and auto-loan receivables. The strategy is aimed at safeguarding against a slowdown in consumer and investment spending that would hit corporates. Robert Giordano, a senior v.p. who manages approximately $1.5 billion in taxable-fixed income, says he considers current Treasury rates too extreme. "I think it's fear that's driving the Treasury market," he says. Giordano, who is unsure how much cash he'll put to work, says spreads on top-flight three- and five-year ABS could tighten 10-15 basis points as fixed-income investors seek a safe haven in the early part of this year. He focuses on highly-structured ABS from big-name issuers, but will buy the occasional second tranche of a deal.
Giordano's corporate holdings, all A- and AA- rated, include concentrations in the financial-services and industrial sectors. Though he has been extending duration and edging into structured products since August, Giordano says he did not expect to see the economy slow and the equity markets tumble as quickly as they have, prompting a flight to quality in fixed-income. He anticipates 3% GDP growth for the year, as consumer confidence, which has held up thus far, begins to wane.
The New York-based bank, which does not employ a benchmark, has a portfolio allocated roughly 45% to mortgage-backed securities, 20% to ABS, 20% to corporates and 15% to Treasuries and agencies. Duration, which is normally kept around 2 years, has been lengthened in recent months to 2.2 years.
