Overall, an estimated $2 trillion is benchmarked against the Lehman Aggregate, according to Steven Berkley, head of the index group in New York. The world's most widely followed bond index raised the minimum size for inclusion to $250 million from $200 million at the start of the month to address liquidity constraints. As a result, the MBS weighting is increasing from 34.78% to 35.75% at the expense of corporates and agencies, which tend to be issued in smaller transactions.
Vanguard's $17 billion Total Bond Index Fund will consider buying about $350 million of mortgages to take its allocation from 35% to 36%, according to Charles Berkowitz, investment information consultant in Malvern, Pa. He stressed the additions will be made gradually.
Jim Hopkins, principal at State Street in Boston, said it will buy mortgages to replace the $200 million in corporates the fund manager recently sold. SSgA may sell more corporates and agencies in the coming weeks and replace them with mortgages, he added. He declined to quantify any potential changes.
BGI has been adding mortgages at the expense of corporates and agencies and will continue to do so in the coming weeks, said Matthew Tucker, index fund manager in San Francisco. He also declined to quantify the shift.
