The Motley Fool Discussion Boards
Investing/Strategies / Bonds & Fixed Income Investments
|Subject: Time to buy closed end funds?||Date: 6/24/2013 2:04 PM|
|Author: pauleckler||Number: 34988 of 35400|
An article in today's Wall Street Journal notes that closed end muni bond funds have taken quite a hit in the last month. The two that I follow, NQS and BLE are down up to 14% depending on the time you pick. Current yield is up to 7.1% fed tax free (in part).
These are leveraged muni funds that borrow at short term rates and buy more long bonds to increase their yield. (The feds claim the additional income is not tax free. Hence they are mostly fed tax free.)
WSJ reports that people are selling these shares because rising interest rates make leverage work backwards. Their money is tied up in long bonds and now the cost of the borrowed funds is rising.
Of course, this should be a temporary effect. As bonds mature and get replaced their yield should rise gradually. But at the moment no one knows how big a hit their current yield will take. It could be down a third or so. I'd be surprised to see it go to zero.
Is it time to buy? Or do we wait for the dust to settle?
|Copyright 1996-2014 trademark and the "Fool" logo is a trademark of The Motley Fool, Inc. Contact Us|