American United Life Insurance will invest the cash flow it generates from its insurance business into single-A and triple-B corporate bonds in order to pick up some yield while remaining in the investment-grade credit spectrum, says Kent Adams, portfolio manager with the Indianapolis-based insurance company.
Adams says his firm expects to put $350 million in cash flow to work between now and the end of the year.
American United recently bought the Eastman Kodak 6.37% notes of' 06 (A2/A+) at a 173 basis point spread over the five-year Treasury. Last Monday, the bonds traded at $100.92, or 155 over. For the triple-B sector, he says the firm bought the Reliant Energy 7.75% notes of' 11 (Baa2/BBB+) at 218 basis points over the 10-year Treasury. The bonds traded at 100.94 last Monday, 252 over.
Adams manages a $4.7 billion portfolio with an asset allocation of 40% public corporate bonds, 30% corporate bonds issued through private placement and 30% MBS.
With a 4.90-year duration, the fund is long its benchmark, the Lehman Brothers aggregate index, whose duration is 4.70-years.
