Why would securities counselors want to shorten duration

Reference no: EM131781119

Question: The following excerpt comes from an article titled "Securities Counselors Eyes Cutting Duration" in the February 17, 1992, issue of Bond Week, p. 5:

Securities Counselors of Iowa will shorten the 5.3 year duration on its $250 million fixed-income portfolio once it is convinced interest rates are moving up and the economy is improving. It will shorten by holding in cash equivalents the proceeds from the sale of an undetermined amount of 10-year Treasuries and adding a small amount of high-grade electric utility bonds that have short-maturities if their spreads widen out at least 100 basis points.

The portfolio is currently allocated 85% to Treasuries and 15% to agencies. It has not held corporate bonds since 1985, when it perceived as risky the barrage of hostile corporate takeovers.

a. Why would Securities Counselors want to shorten duration if it believes that interest rates will rise?

b. How does the purchase of cash equivalents and short-maturity high-grade utilities accomplish the goal of shortening the duration?

c. What risk is Securities Counselors indicating in the last sentence of the excerpt that it is seeking to avoid by not buying corporate bonds?

Reference no: EM131781119

Questions Cloud

Essay on the importance of professional communications : MN501 Network Management in Organisations Assignment. The importance of professional communications and tools and techniques for enhancing the same

Discuss about the refinance premium mortgages : Through," which appeared in the October 14, 1991, issue of Bond Week, p. 5, it was reported that Christian Goetz, assistant vice president of Signet Asset.

What benefit would using the optimal order quantity yield : Other than cost savings, what benefit would using the optimal order quantity yield (relative to the order size of 2,000)?

How a company might need more than one strategy : Can you give an example of how a company might need more than one strategy due to different markets?

Why would securities counselors want to shorten duration : Securities Counselors of Iowa will shorten the 5.3 year duration on its $250 million fixed-income portfolio once it is convinced interest rates are moving.

Utilize remains central to raising the level of performance : skills that employees can effectively utilize remains central to raising the level of performance and productivity of both employees and the organization itself

How is the separation of the programming accomplished : How is the separation of the programming and operating functions accomplished in a properly functioning IT environment?

Performance management and appraisal : PERFORMANCE MANAGEMENT AND APPRAISAL do you think that experts recommendation will be sufficient to get most of administrators to fill out rating forms properly

The application rate per setup using activity-based costing : What is the application rate per setup using activity-based costing, Tandem Company manufactures two products

User Account

All Pages