Becker Capital Management is adding to holdings of one- to three-year Treasuries, avoiding longer notes as 10-year yields flirt with lows of 4%. The asset manager likes the extra yield the short end of the curve provides as the Federal Reserve continues to raise rates, according to Keene Satchwell, who manages $200 million in taxable fixed income from Portland, Ore.
But, Satchwell may re-enter the 10-year Treasury market if 10-year yields lift above 4.5%. When the 10-year cheapens, he may also extend his duration to 3.6-3.7 years from 3.5 years. He declined to speculate when yields might rise to that level. The 10-year was at 4.12% on May 20. The manager is overweight Treasuries at 59% of his portfolio compared to his bogeys.
The all-investment grade shop may also start buying corporates again as spreads widen and more attractive deals trickle in. Satchwell said recent triple-B corporate issuances with a maturity of five years were "starting to become interesting" at 100 basis points over Treasuries. While he declined to name companies he's watching, he expects the most spread widening to occur in triple-Bs. The manager is underweight corporates at 33%.
The asset manager has also had an extreme underweight to agencies for the past two years due to shrinking return in the sector. "The spreads don't warrant aggressive positions in agencies," Satchwell said. The firm's portfolio is composed of 9% agencies, compared to 18-21% in the indexes.
Satchwell's main benchmarks are the Lehman Brothers Government/Credit Index and the Lehman Intermediate Government/Credit Index.