16
Strategy – Duration Targeting
Duration Neutral Relative Value Swaps Swaps of similar duration and credit risk securities for higher yielding securities are a means to improve investment returns without making rate bets or altering the interest rate volatility profile of the portfolio. Highlight May 29 swap of a Treasury for a Defeased Muni backed by an escrow containing Treasuries. Same credit risk. No material change in portfolio duration. Yield pickup of 26 basis points. Municipal bonds are typically bought with spreads of 20 basis points over comparable duration agency/treasury securities. Portfolio contains approximately $150 million of municipal bonds bought for relative value. Description Face Amount Yield Duration Spread
Sale
UST 4.125% 10/31/2027
$2,300,000
3.949%
2.27
Purchase
CAS 4.600% 4/1/2028 ** $2,200,000
4.162%
2.62
0.26%
UST 3.875% 3/15/2028
N/A
3.899%
2.60
Bogey
**Legal final maturity is 4/1/2038; defeased to 4/1/2028.
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