Greg Sweeney, portfolio manager with Northern Capital Management, says he would like to rotate 15% of the firm's portfolio, or $45 million, from corporates into Treasuries. He will not make the move until he sees a sharp decline in Treasury prices. Sweeney says his target for the move would be a 10-year Treasury yield moving up to 5% from 4.06% as of last Monday. For the move to take place, he continues, the two-year Treasury yield should move up to 2.70% from 1.84% and the five-year yield, from 3% to 3.75%. Sweeney says that once the yield curve is more "fairly priced," he will add Treasuries because at a current 10% allocation, he is under-allocated for an asset class that usually makes for 25% of his portfolio. However, because the economy remains sluggish, Sweeney does not anticipate making this move before the middle of next year.
Sweeney wants to sell two-year corporates and buy five-year Treasuries in order to pick-up some yield. An example of a possible sale is the Lehman Brothers 6.62% notes of '04 (A2/A), which last Monday yielded at 44 basis points over the curve. Sweeney says the liquidation is not based on company fundamentals, but rather, reflects the targeted two-year maturity.
Sweeney manages a $300 million portfolio out of Fargo, N.D. He allocates 70% to corporates, 20% to agencies and 10% to Treasuries. With a 3.40-year duration, the fund is short its 5.25-year bogey, the Lehman Brothers government index.
