James Investment Research is moving out of Treasuries and into MBS, as well as some non-callable agencies, on the view that the former have priced in too much good news and the latter could see spread-tightening as investors seek quality. Barry James, a senior portfolio manager for some $200 million in taxable fixed income, says MBS and agencies could tighten this year 50-100 basis points and 25-75 basis points, respectively. Treasuries may have over-rallied, now that it appears the budget surplus may not be as large as once anticipated. He says he may boost his MBS allocation from 10% of the total portfolio to 15-20% and the agency allocation by perhaps only a few percentage points by selling five- to 10-year Treasuries and buying MBS with maturities of 10 years or more, such as 30-year Ginnie Mae 61/2%s. Keeping to lower coupons such as this will also help protect him from the expected boom in refinancing. James says if he sees a pullback in rates of 25-30 basis points he would look to extend duration out to about six years from its current 5.5 years via the Treasuries-MBS swap. The duration of the portfolio's benchmark, the Lehman Brothers Government/Credit Index, is 5.54 years. The Alpha, Ohio-based firm's portfolio is allocated 46% to Treasuries, 36% to agencies, 10% to MBS and 8% to corporates.
Ohio Manager Moves Into MBS
