Advantus Capital Management is seeking to shorten duration by some 5% to prepare for an anticipated higher-interest-rate environment in 2002. Wayne Schmidt, a portfolio manager who oversees $1.65 billion in taxable fixed-income, says the St. Paul, Minn. firm will probably sell $25 million in 10-year U.S. agency debentures, and buy a combination of three- to four-year corporates and 30-year Treasuries before year-end. Schmidt says he is waiting for indications from the Federal Reserve that it has finished cutting interest rates before making the move. He would also like to see stability, if not improvement, in unemployment and consumer confidence data.
Schmidt may also seek to sell selected corporate bonds, such as the Enron 6.725% notes of '08, the Qwest Communications 7% notes of '08 and the WorldCom 7.5% notes of '11. Schmidt says he will sell the Enron paper if the company is acquired by Dynegy and the bonds, which traded in the mid-70's last Tuesday, return to par. As for the telecom paper, Schmidt says it would have to tighten from last week's levels of over 300 basis points over the curve to the low- to mid-200s before he would seek to sell.
At a duration of 4.15 years, Advantus is slightly long its benchmark, the 4.10-year Lehman aggregate. Advantus allocates 34% to corporates, 32% to mortgage-backed securities, 12% each to agencies and Treasuries, 7% to commercial mortgage-backed securities and 2% to asset-backed securities and 1% to cash.
