SEB Asset Management America may look to add duration if Treasuries continue to sell off. Anders Ekernas, president and cio of $1.5 billion in fixed income, says the asset management arm of the Swedish bank may extend duration by buying 15-year Treasury bonds and selling shorter ones if prices continue to drop. Ekernas notes they were yielding 4.5% early last week and "if they back up another 25 basis points, we would be buyers." The portfolio is currently neutral the 5.5-year duration of its benchmark, the Lehman Brothers government/corporate bond index.
Otherwise, SEB is planning to maintain its overweight to Treasuries and other agency paper, such as Tennessee Valley Authority notes. Combined, the two sectors account for 90% of the portfolio, with spread product contributing the remaining 10%.
The corporate allocation had been significantly higher, at 18% at the end of the first quarter, but SEB has taken advantage of tightening to pare its exposure. "We feel that spreads are ludicrously tight; we have sold out of spread product and bought Treasuries on the expectation that at some point we will be able to shift back into spread product," Ekernas says. Now, he says SEB will look for a blip in corporate spreads before selling Treasuries to take advantage of attractive valuations. He declines to name specific issues, except to say SEB would be buyers of "anything from the World Bank to junk bonds. When risk aversion is high, that's the time to take on more risk."