BB&T Asset Management has nearly completed a major shift out of long Treasury bonds, slashing its duration by 10-15% in the first two weeks of this month. The manager believes recent yield rallies don't offer enough reward for staying long-duration. However, the firm won't completely abandon long bonds, says Keith Karlawish, who manages $190 million in taxable fixed income, because inflation remains relatively contained and there are continuing Treasury buybacks.
The Raleigh, N.C.-based team will use the proceeds from the Treasury sales to increase corporate bond exposure by about 10%. Karlawish sees the Federal Reserve easing as a positive development for corporates, which will gain as investors start clamoring for more yield in the second half of the year. He will focus on single-A corporates, especially at the front end of the yield curve, which he believes will continue to steepen as the Fed eases rates. He declined comment on specific credits.
In addition to 15% in corporates, the firm has less than 30% in mortgages, over 30% in agencies and the balance in Treasuries. Using the Merrill Lynch Five- to 10-year U.S. Government Index as a bogey, his duration is currently 5.7 years, between 105-110% of the benchmark.
