tag:blogger.com,1999:blog-2986124651030959736.post2545606405279625365..comments2024-03-28T09:42:38.695-05:00Comments on Stocks, Bonds & Politics: HCBK/Bought 100 of the Bond CEF ERC at 15.13/MBC & MOU/Sold 50 ANIK at 9.43/Sold 100 VEU at 49.19/Edison Mission/FETENNINDEPENDENThttp://www.blogger.com/profile/17444227958539559639noreply@blogger.comBlogger5125tag:blogger.com,1999:blog-2986124651030959736.post-18156157322218870782011-03-03T16:13:41.072-06:002011-03-03T16:13:41.072-06:00The reference to 10% is the result of some sort of...The reference to 10% is the result of some sort of brain malfunction. I meant to say 4%. The ten year note is now yielding 3.557% as of the close today. So I pick up almost 4 1/2% over that rate by investing in ERC at its current monthly dividend rate. <br /><br />I have previously mentioned a 4% yield on the 10 year as a trigger for a reduction in my bond fund holdings. I am also using a rise above a 1% to 1 1/2% 3 month LIBOR as a possible trigger on reducing my positions in leveraged bond funds who borrow at a spread over 3 month LIBOR. <br /><br />My last post mentioning the 4% yield trigger in the ten year treasury is from 1/7/2011, near the end of the introduction. Needless to say, at a 10% ten year treasury, bond fund investors would be in a world of hurt.TENNINDEPENDENThttps://www.blogger.com/profile/17444227958539559639noreply@blogger.comtag:blogger.com,1999:blog-2986124651030959736.post-42555478793026336322011-03-03T15:04:10.173-06:002011-03-03T15:04:10.173-06:00correction on my prior comment: I did notice later...correction on my prior comment: I did notice later today that ERC had reduced its dividend rate for the next monthly dividend from $.1083 to $.10 which reduces the yield to 7.93% at a total cost of $15.13. This does not change my opinion expressed in the prior comment given that I have to buy junk bonds to get a 8% rate.TENNINDEPENDENThttps://www.blogger.com/profile/17444227958539559639noreply@blogger.comtag:blogger.com,1999:blog-2986124651030959736.post-20443633925883881722011-03-03T14:53:42.184-06:002011-03-03T14:53:42.184-06:00Thanks for that explanation. Just please clarify ...Thanks for that explanation. Just please clarify "a rise in the 10 year treasury note to over 10%". I assume you mean 10% off the low?jeffs0https://www.blogger.com/profile/06493086150038358682noreply@blogger.comtag:blogger.com,1999:blog-2986124651030959736.post-54509510747985354482011-03-03T11:57:25.852-06:002011-03-03T11:57:25.852-06:00The short answer is yes to your question.
But, ...The short answer is yes to your question. <br /><br /> But, there are at least four other considerations that come into play. <br /><br />(1) While I believe that rates will rise, I may be wrong. This falls under the heading of who knows what the future will bring. <br /><br />(2) It is important to look at the bond funds duration and effective maturity. A long term bond fund will be more adversely impacted by rising rates than one with a short average duration. According to the Fact Sheet for this fund, which can be downloaded at the sponsor's web site, the current effective maturity is 4.6 years and the average duration is 3.4 years. This gives the fund some flexibility to respond to higher rates given the number of bond owned with shorter maturities. The fund had 672 holdings. <br /><br />(3) The current yield of over 8.5% annualized at the current monthly payment rate provides me with compensation to assume the interest rate risk, as does the large discount for a bond fund to current net asset value. And,<br /><br />(4) I have sold some shares in this bond fund when the price exceeded $16 and will likely do so again. This paring process will lower my average cost over time. In the event I become really concerned about interest rate risk, I have the option of selling some shares at a loss too. Hopefully, if that happens, the dividend will provide me with an acceptable total return.<br /><br />Under no circumstances would I hold this bond fund when I am sure that a long term secular bear market in bonds is well underway. I believe that one has started but I am not confident yet in that belief. One way to protect myself is to have a trigger for reducing the position in bond funds.<br /><br /> My trigger is a rise in the 10 year treasury note to over 10%. When that happens, and I believe that it will start in 2011, I will start the paring of bond funds without a term date, staring with the ones that have the longest durations.TENNINDEPENDENThttps://www.blogger.com/profile/17444227958539559639noreply@blogger.comtag:blogger.com,1999:blog-2986124651030959736.post-16816562123245090062011-03-03T10:06:03.063-06:002011-03-03T10:06:03.063-06:00Just wondering about your CEF ERC buy. Won't ...Just wondering about your CEF ERC buy. Won't ERC behave like a bond mutual fund in a rising interest rate environment and lose value?jeffs0https://www.blogger.com/profile/06493086150038358682noreply@blogger.com