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Contrarian L.A. Buyer To Extend Duration

05 Aug 2004

Payden & Rygel Investment Management plans to extend duration by half a year because it believes the U.S. economy is not ready to take off.

Scott Weiner
Payden & Rygel Investment Management plans to extend duration by half a year because it believes the U.S. economy is not ready to take off. Scott Weiner, managing principal of $16 billion in taxable fixed income for the Los Angeles-based firm, said it plans to be active in the Treasury market and will use government securities to extend duration. "We will lengthen duration by buying anywhere between $500-750 million of Treasury equivalent," he said. The fund manager plans to sell five-year Treasuries and buy 10-and 30-year securities. "We expect bearish economic data in the coming months," he pointed out. The yield on the 10-year Treasury was at 4.45% last Tuesday.

Payden & Rygel's portfolio is managed against the Lehman Brothers Aggregate Bond Index and is currently duration neutral in relation to the benchmark. Weiner said he is 5% overweight in corporates, neutral in Treasuries, 5% underweight in agencies and neutral in mortgage-backed securities. The shift toward longer duration will not affect the firm's allocation to Treasuries. Within corporates, Weiner prefers high-beta credits such as autos and telecom. The portfolio is overweight in triple-B securities. The firm will remain neutral in mortgages,Weiner said, adding he is overweight in high-coupon high-yielding MBS. He holds Fannie 6% 15-year mortgages.

05 Aug 2004