"Sometimes you can get a little lucky, not in terms of the credit, but in buying something highly unlikely to be called. That's how we're trying to get more yield for clients," he said.
The investment firm, with about $735 million in assets under management, has been looking mostly at high-quality tax exempts with maturities out to seven years, but it has been staying relatively short for final maturities for the last two to two-and-a-half years. Because its portfolio duration is fairly short, probably around a three-year duration, it would not have bonds with more than a five-year maturity. He cautioned, however, that that strategy could change if the yield curve changed.
"Right now, particularly in the fixed-income market, it's so challenging with the shape of the yield curve, which is relatively flat. It's hard to get excited about where to place your chips. [We] are really looking for areas offering some sort of value; or at some small issues, some [municipal] deals, where you doubt it's feasible or economically viable to call the bonds."
The firm has been staying away from corporates and Bender noted that with credit spreads so compressed, his firm does not think it is getting paid enough to take on the additional credit risk. "We talk about them, we look at them, we stay aware of corporate spreads for benchmark type names," he said. "No one ever says 'never.' We will look at them, but do we intend to look at them tomorrow, probably not." He said that if there is a period when corporate spreads widen, then the firm may look at them. If it did, it would use the Lehman Brothers Aggregate Bond index as its benchmark.