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Investor Eyes Maturity Shift For Agencies

Morgan Asset Management will swap up to $250 million out of the wings of its agency and Treasury holdings to the belly of the curve by June.

John Norris

Morgan Asset Management will swap up to $250 million out of the wings of its agency and Treasury holdings to the belly of the curve by June. The asset manager is currently overweight the one-to-three-year and eight-to10-year sectors but will switch that weighting to the three-to-eight-year sector once the Federal Reserve stops raising rates, according to John Norris, senior fund manager. Norris manages more than $1 billion in Treasuries and agencies from Birmingham, Ala. "Our call is for the [Fed] to be on autopilot until 3-3.25%," he said. Norris currently has 25% of his portfolio invested in the three-to-eight-year sector of the curve and 75% invested in the wings. The manager said he will increase his weightings to the belly to up to 50%. Conversely, he will sell 10% of the short end and 15% of his portfolio in the long end. Within the belly of the curve, the manager said he would evenly distribute his cash among the different maturities.

Norris is significantly underweight Treasuries at 20%, versus his index's 68%, and is overweight agencies at 60% versus the benchmark's 32%. Another 15% is invested in mortgage-backed securities and managed by Michael Smith, portfolio manager, while the remainder is in cash. "We've been looking for additional spread since we felt 10-year Treasury rates were going to be range-bound," said Norris, explaining his overweight. He also attributed his overweight to opportunistic buying. "Last year every time Fannie Mae and Freddie Mac spreads widened out, we were buyers," he commented.

Within agencies, Norris pursues a similar barbelled strategy and has a minor overweight to Fannie Mae versus Freddie Mac debentures. The manager declined to quantify the overweight.

Norris' bogey is the Merrill Lynch Treasuries/Agencies 1-10 Year Index. The manager is close to his benchmark's duration of 3.31 years at around 3.35 years.

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