Chicago-Based ARM Shop To Buy Faster Reset Paper

  • 08 Dec 2002
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David Petrosinelli, portfolio manager at Chicago-based Shay Assets Management, says the firm will reduce interest rate risk by allocating more to faster resetting securities in a move destined to reposition its $3.7 billion adjustable rate mortgage portfolio as it believes interest rates are about to rise. He reasons that in a rising interest rate environment, bonds that reset to a coupon in line with market rates perform better.

Petrosinelli plans on following this strategy in two ways. First, by swapping 3%, or $111 million, out of Ginnie Mae ARMs into Fannie Mae and Freddie Mac ARMs because Freddie and Fannies have a faster reset (four to six month's interval) than Ginnies, which only reset once a year. He will also rotate 8%, or $296 million, of the firm's portfolio out of fixed-rate collateralized mortgage obligations into an equal amount of cash and floating rate CMOs.

Petrosinelli allocates 25% to private labels ARMs, 15% to cash, 14% to Fannie Mae ARMs, 14% to Freddie Mac ARMs, 14% to fixed-rate CMOs, 13% to floating CMOs and 5% to Ginnie Mae ARMs. The average duration is nine months. The firm uses the six-month Treasury bill as its benchmark.

  • 08 Dec 2002

All International Bonds

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3 Barclays 19,404.68 52 6.27%
4 BNP Paribas 19,264.87 42 6.22%
5 HSBC 19,097.04 63 6.17%

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2 Sumitomo Mitsui Financial Group 160.81 1 1.47%
2 SEB 160.81 1 1.47%
2 Nordea 160.81 1 1.47%

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1 Bank of America Merrill Lynch 220.22 2 13.96%
1 ABN AMRO Bank 220.22 2 13.96%
4 Barclays 129.04 1 8.18%
5 Morgan Stanley 114.77 1 7.28%