So I’ve been following CEF’s for a while and it seems that some will probably benefit greatly from the strange mix of low libor but tight credit. Many of them use ARPS to fund their leverage and since the auctions continue to fail they end up paying some contracted max rate that more often than not is tied to libor. some of the HY FI funds I’m looking at keep reseting @ 150% of 7-day libor (currently at 0.45 vs 4.6 a year ago) so ~.0675. That leaved quite a spread over the average coupon rate received and a significant discount to what they were paying a few years ago. I think I’m ready to jump in on some considering the above + : - going on recent annual/semi annual reports that include holding/liability info that includes the hiccups of Nov 21 to ensure the fund is clear of further ARPS liquidation due to coverage issues. -many are still trading at a 20% + discount to NAV -I think HY Debt is a good sector considering current valuations yields. thoughts… opinions… anyone??
i moved into these puppies 2-3 weeks ago. you gotta be careful though - if yields go up, either due to a treasury market downdraft [spread compressions should offset, unless some really crazy development happens, and good God of pain, have we seen those recently] or due to spread increases [hey, maybe we will have 50% defaults after all, its all good], you are toast. these puppies will fall like rocks due to the leverage in them. thats why i started with the unleveraged ones - CIK, MSY i also looked at the bank loan CEFs - they’ve already rallied quite a bit though.