Bank Leumi USA will shorten duration by 0.5-years over the next two months on the view that the economy is bottoming out. Robert Giordano, portfolio manager of just under $2 billion in taxable fixed-income at the Manhattan-based subsidiary of Bank Leumi le-Israel, says the Bank will exchange fixed-rate securities or floaters, to hedge against a sudden rise in interest rates.
Giordano expects a slow pickup in growth for the third quarter, with GDP of about 1.5%. However, he believes that the Federal Reserve could stop easing rates after a widely expected cut of 25 basis points at its Aug. 21 meeting, and that when the market begins to sense a turnaround, interest rates could climb quickly. He will sell largely triple-A-rated asset-backed securities, but also some corporates and, to a lesser-extent, mortgage-backed paper to buy collateralized bond obligations, collateralized loan obligations and floating-rate collateralized mortgage obligations.
Bank Leumi allocates 48% to MBS, 30% to corporates, 14% to ABS and 8% to U.S. government securities (largely agencies).
