Miguel Biamon, v.p. and director of fixed income with around $800 million in fixed income assets under management at Bryn Mawr Trust, is shifting his primary investment focus from corporates to agencies. "This has been our strategy for a little while now. We are making an effort to slim corporates to bump up on agencies," Biamon commented. Biamon has been looking to government agency bonds that have imbedded call options that make them callable at a certain date. He has also shown interest in step-up coupon bonds.
"Non-call government agency bonds are real tight to Treasuries now and I don't see a lot of pickup there. Maybe you could get 25 basis points on a five year and 35 basis points on a 10 year. That's why only about 25% of our government agencies are of the non-call variety," he explained. The other 75% is in callable agencies, because it is easier to get more spread. "Let's say that you've got a five-year Treasury, you'll probably get about 4.5% yield. A five year non-call might net you 4.75%, but with a five-year callable I can get yield of around 5.5%. All of a sudden I'm plus 100 over Treasuries. It just makes more sense," Biamon explained.
Although he is shifting some of his focus to agencies, Biamon still has a large part of his portfolio invested in corporates. Biamon states that Bryn Mawr is a high-end shop that only invests in 'A' rated issues or better. "We've been looking a lot into finance paper lately. It's very attractive due to its incremental yield," he said. Biamon recently bought into Morgan Stanley's new five-year issuance at 78 basis points. "I felt it was a good buy at the right time. You can also buy into similar, 10-year deals of Bank of America and Merrill Lynch for around 85-90 basis points," Biamon added.
Biamon uses the Lehman Brothers Intermediate Government Index as his benchmark and his duration is 3.6 years. "Year to date [as of October 31] we have outperformed our benchmark," Biamon explained. "Our benchmark was at 51 bps and we returned 125 bps; we were 74 bps ahead." Biamon's portfolio comprises 5% Treasuries, 47% agencies and 48% corporates.