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UN Portfolio May Overweight MBS

United Nations Federal Credit Union is considering adding 15-and 30-year pass throughs in late summer or early fall to bring its neutral allocation in mortgage-backed securities to overweight.

Christopher Sullivan

United Nations Federal Credit Union is considering adding 15-and 30-year pass throughs in late summer or early fall to bring its neutral allocation in mortgage-backed securities to overweight. Christopher Sullivan, who manages a $1 billion portfolio in New York, said he will add longer-dated securities when Treasury yields back up and fixed-income spreads widen. Sullivan declined to quantify how much he will buy. Specifically, Sullivan said he may add mortgages if the yield on 10-year Treasuries hits 5.25% and volatility picks up significantly. The benchmark notes yielded 4.71% on June 28. Sullivan noted he would finance the move by putting new cash to work and by selling agencies and corporates to reduce neutral allocations to these sectors to underweight. The portfolio is run against a customized version of the Lehman Brothers Aggregate Bond Index.

Currently, 10% of the portfolio is in Treasuries, 35% is in agencies, 20% is in mortgage-backed securities, 31% is in corporates and municipal bonds. The remaining 4% is held in commercial mortgage-backed securities.

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