Something shocking just happened: Treasury Secretary Steven Mnuchin cut off a $454-billion program the Federal Reserve uses to keep the bond market running.
A disaster, right?
You’d think so. After all, we’ve heard time and time again that the Fed will do whatever it takes to support the bond market through the crisis. Now a big source of cash needed to do that is gone.
The bond market’s response was even more surprising: crickets.
The junk bond–tracking SPDR Bloomberg Barclays High Yield Bond ETF (JNK) and iShares National Muni Bond ETF (MUB) held on to post-election gains after Mnuchin’s decision was announced.
No Fed Guarantee—and No Drop?
If you think this is an opportunity to sell, I’d ask you to reconsider. While markets get things wrong all the time, in this instance they’re right not to worry; the programs that guaranteed debts went almost entirely untouched.
Today, investors understand that these programs were barely needed, even in the spring lockdown.
And since we’re unlikely to see a national lockdown in this second wave of COVID-19, these programs aren’t as necessary as you’d think. Even in the unlikely event we do see a lockdown, it’s fairly safe to assume that since the programs weren’t needed last time, they won’t be needed this time.
But that hasn’t stopped some spooked investors from jumping the gun. That, in turn, has set up some bargains for us in closed-end funds (CEFs).
The Big Yield Steal
Consider, for example, the Western Asset High Income Opportunities Fund (HIO).
Right now, HIO trades at a 9.6% discount to NAV, more than its long-term average discount of 7.2%, partly due to overreaction to the Mnuchin headline. What’s more, HIO has crushed corporate-bond index funds like JNK since its IPO.
Bond CEF Easily Beats the Index
And, finally, HIO is an income machine, offering a 7.9% yield, thanks to its diversified high-yield bond portfolio and large discount. As you can see above, HIO holders have doubled their investment in a decade. If you buy today, you’ve got an excellent shot at doing the same.
— Michael Foster
Urgent: Ignore These 4 CEFs Now and You’ll Miss Out on MASSIVE Gains [sponsor]
HIO isn’t the only high-yield bargain in CEF-land—not by a long shot! There are plenty of others paying 8%+ dividends and trading at even bigger discounts.
And you’re not limited to corporate-bond funds, either. There are terrific deals to be had on CEFs focusing on US stocks, real estate investment trusts, preferred shares … you name it.
That’s the beauty of the CEF market—it’s totally irrational (in a good way!). So even at times like these, when the stock market seems overvalued—there are big CEF dividends available for cheap.
Urgent Buy Alert: 4 CEFs Primed for 20%+ Gains in 2021 (and 8.1% Dividends)
That brings me to the 4 CEFs we need to talk about now. They yield an incredible 8.1%, on average, and my proven CEF-picking system just flashed an urgent buy alert on all 4 of them.
Why?
Because their discounts just tipped into unsustainable territory. That means, as these discounts spring back to normal levels—a certainty, in my view—they’ll slingshot these 4 income plays to 20%+ price gains!
You’ll definitely want to be aboard—and happily collecting your 8.1% payouts—before that happens. Click here and I’ll give you full details (including tickers and full dividend histories) right now!
Source: Contrarian Outlook