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Hi everyone,

Well - I would love more detailed information than what I can find (yet) but I haven't seen anyone post the actual 30-Day SEC yield formula so if this is redundant - my apologies. I think from reading past posts that much of this is understood so again - my apologies if being a bore :)

OK - after the hedges:

If I understand correctly the 30-Day SEC yield is an attempt to convert a monthly dividend stream into a bond equivalent yield (analagous to the quoted yield of a semi-annual pay bond). In that sense the SEC yield should be comparable to the yield to maturity on a bond and therefore the "apples to apples" measurement against other bond funds.

The formula is:

Yield = 2 * [((a-b)/(cd)+1)^6) - 1]


a is the dividend and interest income (based on yield to maturity)
b are applicable expenses over the time period
c is number of shares
d is maximum offer price on last day of time period

The term (a) defines the projected income and dividends as represented by yield to maturity. In other words it considers the premium or discount on the bond relative to the coupon payment as well as the coupon received - thus the amortization of the premium or discount from par will affect the income received (to the bond fund).

In a decreasing interest rate environment the bonds in the portfolio will increase in value. That means moving forward, the yield to maturity will decrease to less than the actual coupon payment because of the reduction by the amortization of the premium of the bonds. This is the key to understanding the difference between the distribution yield and the 30-Day SEC yield (I think:)

Consider the same decreasing interest rate environment with the distribution yield. The cd (NAV) number in the denominator will track in the same direction as the 30-Day SEC yield, however the numerator is not nearly as sensitive to the decreasing rates as its calculated by the past 12 months of actual dividend distributions which obviously are not affected by current changes in the bonds prices in the portfolio. Therefore the distribution yield will hold up better in a decreasing interest rate environment because the numerator isn't dropping as fast as the 30-Day SEC yield's numerator. [The reverse should be happening now as interest rates have been rising]

So in that sense the SEC yield should be a better forward indicator of yields measured by yield to maturity whereas the distribution yield is a better indicator of what at the least the short term distributions might look like without considering the effects of the current interest rate environment moving forward.

Anyway that's my interpretation :)


PS: I found this article extremely helpful and used it to help formulate my understanding for this post
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