Bailard, Biehl & Kaiser is looking to buy short-term Ford Motor Credit debt in a bid to pick up yield and limit interest rate risk. Eric Leve, portfolio manager of some $120 million in taxable fixed-income, expected to be in the market buying the paper last week. As a trigger for the trade, he had been waiting to see stronger factory orders, which in fact proved to be down when they were released last week after Leve outlined his strategy to BW. Leve hoped stronger manufacturing numbers would indicate that the economy was turning, which he said would drive up the two- to 10-year "belly" of the Treasury curve. The Ford 6.125% notes of '03 (A3/BBB) were trading at 354 basis points over Treasuries last Monday. Leve says he might look to sell the Pfizer 5.625% notes of '06 (Aaa/AAA), which were trading at just 56 basis points over the curve. Leve expects to buy $2.5 million overall in Ford and possibly other triple-B names in two- to five-year maturities, trading out of higher-rated names to pick up yield and maintain low duration.
The firm is also looking to buy $2 million in 10-year German Bunds, in order to pick up 60 basis points of yield versus 10-year U.S. Treasuries. Leve says improved vehicle sales and factory orders will drive this trade as well, as yields will back up further on Treasuries, making them still less attractive to Bunds on a relative basis. The firm recently sold $17 million in 10-year Treasuries as it increased it equity allocation, part of Leve's strategy to maintain a low duration in anticipation of a rise in the belly of the curve.
The Foster City, Calif., investor has an overall duration of 4.98 years. Its U.S. bonds are at 4.84 years versus its main bogey, the 5.13-year Merrill Lynch government/corporate index. It allocates 36% to corporates, 22% to Treasuries, 21% to agencies, 19% to dollar-denominated non-U.S. debt, 1% to TIPS and 1% to cash.
