Morgan Stanley High Yield Fund: Play the Increase In Junk Bond Yields

| About: Invesco High (MSY)
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I started a small position in the Morgan Stanley High Yield Fund (NYSE:MSY) ($5.76) yesterday. According to the Closed-End Fund Association website, the Morgan Stanley closed-end fund is trading at at 14% discount to Net Asset Value of $6.72. The recent increase in junk bond yields (drop in prices) has made me neutral on the sector (from negative).


MSY analysis:


Positives:

1. Junk bond (non-investment grade) yield spread have increased lately, meaning investors get paid more for taking additional risk.

2. MS High Yield fund is at a big discount. I'm buying the underlying bonds at a 14% off to what it would cost to buy them directly. Now there is no guarantee this discount will close, but a 15% discount does tend to set a floor for this fund.

3. Yield of 7.5%


Negatives:

1. Rising defaults on junk bonds could hurt this fund.

2. Potential for rising interest rates.

3. The huge expense ratio 2.00% charged by Morgan Stanley Asset Management for managing this fund should keep the discount to NAV from improving all the way to zero.


Disclosure: I own MSY as described above. I may buy more in the near future, depending on prices and market conditions. I may also sell this fund and switch to Indexed Exchange Traded Fund that specializes in junk bonds like (HYG - $104.39) if the discount to NAV closes significantly.


I have been previously employed as a Managing Director at Morgan Stanley. I worked in the equity trading division and did not deal with Morgan Stanley Asset Management. I am still vested in their pension and executive compensation plans. I own Morgan Stanley (MS) stock.