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Minnesota Investor Seeks More IG Yield

Advantus Capital Management is looking to swap some $60 million in corporate issues in a bid to add incremental yield. Wayne Schmidt, portfolio manager of a $1.2 billion taxable bond portfolio, says the firm is looking to make roughly six $10 million trades out of issues that have performed well in recent months and trade inside 100 basis points over Treasuries, and into credits that the market perceives as riskier. The firm has thus far had an easier time identifying credits to trade out of that ones it wants to buy, however. Candidates for sale include the Colgate-Palmolive 5.98% notes of '12 (Aa3/AA-), an issue that came in April at 78 basis points over Treasuries. Pricing on the issue was difficult to determine last Monday, but Schmidt believes it should sell in the mid- to low-60s. Another solid performer Advantus may sell is the Gannett Company 5.5% notes of '07 (A2/A). It was trading at 76 basis points over the curve last Tuesday.

Advantus may look to the new issue market for its purchases. It recently bought the Dominion Resources 5.7% notes of '12 (Baa1/BBB+), using cash and 10-year agencies to fund the trade. Another recent new issue it bought is the Safeco Corp. 7.250% notes of '12 (Baa1/BBB+) which came at 312.5 basis points over the curve and had tightened to 260 over Treasuries as of last Monday. Schmidt says he expects the issue to tighten to the low 200s over time.

At a duration of 4.1 years, the St. Paul, Minn. money manager is slightly long its bogey, the 3.94-year Lehman Brothers aggregate index. Advantus allocates 48% to mortgage-backed and CMBS, 35.5% to corporates 8%, 6% to asset-backed securities and 2.5% to cash.

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