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Evergreen May Reverse Barbell

Evergreen Investments may reverse its barbelled strategy in Treasuries and buy back the intermediate parts of the curve should the 2s/10s curve stabilize at 50 basis points, which may signal the end of curve flattening.

David Fowley

Evergreen Investments may reverse its barbelled strategy in Treasuries and buy back the intermediate parts of the curve should the 2s/10s curve stabilize at 50 basis points, which may signal the end of curve flattening. The 2s/10s curve has averaged 80bps over the past few years, according to David Fowley, portfolio manager and head of a team that manages $6.2 billion in fixed income from Charlotte, N.C. The gap between the two maturities was at about 74bps on March 7. The manager said he expects the curve to flatten further as the front end of the curve rises faster than the back end in response to the Federal Reserve's continued raising of interest rates. Fowley declined to speculate when this might happen or quantify the amounts held in the intermediate parts of the curve.

The funds Fowley manages use a variety of benchmarks and each fund differs in what is considers the wings and the belly of the curve. But as an example of his barbelled strategy, he said his $400 million fund benchmarked against the Lehman Brothers 1-3 Government/Credit Index is underweight the two-to-three-year part of the curve. The manager said he would use Treasuries to manage duration because of the liquidity and the tight bid/ask spreads.

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