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The Bank of New York Trust is considering adding to its already overweight position in investment-grade corporates, across all maturities, on the belief that an improving economy will have a beneficial impact on corporate bond performance. Margo Cook, portfolio manager of $5 billion in taxable fixed income for a bank portfolio, currently allocates 28% to corporate bonds. Cook is moderately bullish on the economy and says improving cash flows and balance sheets, combined with a decline in leveraging, are helping to improve the outlook for corporate bonds. "It is a very good environment for credit looking out over the next 12 to 36 months," she says.

Cook declined to name specific credits she would add, or say how her outlook might affect the portfolio's exposure to corporates. The portfolio is run predominantly against the Lehman Brothers Aggregate Bond Index, which has 26% in corporates. Elsewhere, the bank is underweight in government bonds and overweight mortgage-backed securities. It has 20% in govvies, compared to the index's 34%, and 35% in MBS, compared to 40% in the benchmark. The Bank of New York is overweight to asset-backed securities, with nearly 10% in the sector, versus less than 2% in the index. The portfolio is 5% short the index's roughly 4.5-year duration.

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