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Manager Eyes Longer Treasuries

Hillswick Asset Management will put new cash to work in 20-year Treasury strips.

Anders Ekernas

Hillswick Asset Management will put new cash to work in 20-year Treasury strips. Anders Ekernas, president of the $800 million Stamford, Conn., investment-grade fund, said this part of the curve is one of the few spots in fixed income with a reasonably attractive risk-reward relationship. The manager has a 75% allocation to Treasuries which is significantly overweight its benchmarks, which include the Lehman Brothers Aggregate Bond Index and the Lehman Brothers Intermediate Government/Credit Index. "We're significantly overweight Treasuries because we feel strongly that spreads are way too tight on corporates and agencies," Ekernas stated, noting he views his overweight Treasury allocation as a defensive position. The dollar decline is not worrisome to the manager, who does not expect a Treasury sell-off from foreigner investors. "With everyone on CNBC telling everyone to invest money overseas, my guess is we've already seen the trough in the dollar," he quipped.

Hillswick only allocates 15% of its portfolio to corporates and supranationals and "is scrupulously avoiding [Fannie Mae]'s and [Freddie Mac]'s bonds," noted Ekernas. The manager expects spreads on all credit product to widen in 2005, at which point he expects to increase his allocation to spread product. The remaining 10% of his portfolio is in mortgage-backed securities.

Hillswick's duration is 20% long those of its benchmarks. Ekernas anticipates the Federal Reserve will hike the Fed Funds rate once or twice more, but is close to ending its rate-rising process. "[In a year or so], long-term rates will be lower than where they are now," he predicted.

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