Winston-Salem, N.C.-based Wachovia Asset Management is considering shifting 2-3%, or some $140-210 million, of its fixed-income assets into 10-year auto paper. Wayne Morgan, portfolio manager of approximately $7 billion in taxable fixed-income, says the firm would probably swap out of shorter-maturity ABS or telecom bonds in an attempt to pick up spread and capitalize on a steep yield curve. He says he has been taking a preliminary look at General Motors Acceptance Corporation 6.875% notes of '11 (A2/A). The bonds had widened to 237 basis points over Treasuries last Monday, 40-45 basis points wider than they were on Sept.11. Morgan says Wachovia may buy the bonds at those levels, but he wants to re-read the credit reports before taking the plunge. Any widening in the bonds, in spite of the implications it would have for further softening in the economy, would only make them more attractive, from Morgan's point of view.
Morgan says he is looking at GMAC, rather than Ford Motor Company (A2/A) or Daimler Chrysler (A3/A-), because it is a larger company, and is assuming it is probably a safer bet in a recession. He is also impressed by his credit analyst's view that GMAC's Northstar, an on-board computer with navigational and other functions the company leases to car owners on a monthly basis, will generate strong cash flow.
Wachovia's 4.7-4.8-year duration makes it slightly long its bogey, the 4.5-year Lehman Brothers aggregate index. Wachovia allocates 37% to corporates, 35% to mortgage-backed securities, 10% to Treasuries, 8% to agencies, 4% to asset-backed, 4% to closed-end funds and 2% to CMBS.
