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SunAmerica Looks To GNMA Shift

SunAmerica Asset Management will buy an unspecified amount of Ginnie Maes if the yield on the 10-year Treasury rises to 3.9%.

Michael Cheah

SunAmerica Asset Management will buy an unspecified amount of Ginnie Maes if the yield on the 10-year Treasury rises to 3.9%. Michael Cheah, portfolio manager of $1.5 billion in Jersey City, N.J., says he will be a big buyer of 5% and 5 1/2% Ginnies when prices on Treasuries scale back from their recent highs, which were reached in the wake of the Madrid terrorist bombings and a disappointing U.S. jobs report. The agency debt provides a healthy risk-reward balance at a time when refinancing activity is picking up and prepayment uncertainty is increasing, Cheah explains. The yield on the 10-year was 3.76% on March 15. Cheah thinks there is a good chance yields will rise for two reasons: One, there could be selling for profit taking and two, foreign central banks could sell for currency stabilization. The fund manager says he will be a big buyer of GNMAs and Treasuries under these conditions. "I like to buy when others are selling," he explains. Cheah thinks the GNMA 5% are fairly valued at 101.16, 5 1/2% at 102.28 and 4 1/2% at 98.10.

The fund's current allocation is 80% in GNMAs, 10% in Treasuries and 10% in cash. Of the GNMA portion, 60% is in 5% coupons, 30% are 5 1/2% notes, and 10% are of the 4 1/2% variety. He declined to quantify how much he might buy if Treasuries back up. The duration of his portfolio is 4.5 years, neutral that of the benchmark. The fund's benchmark is a composite of the Merrill Lynch Mortgage Index and the Lehman Brothers Treasury Index.

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