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How To Keep Track Of CEF Duration Exposure

Feb. 17, 2021 11:50 PM ET
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  • Welcome to another weekday blog post from Systematic Income.
  • A recent spike in Treasury yields has pushed lower longer-duration funds.
  • We take a look at how investors can stay ahead of the trend and keep an eye on their duration exposure.
  • Take a 2-week no-obligation trial of Systematic Income to explore our Income Portfolios and Investor Tools.

Welcome to another weekday blog post from Systematic Income in which we touch on how investors can keep track of their duration exposure.

A recent spike in Treasury yields caught investor attention. On Monday, 10-year Treasury yields moved up by 0.10%. Just how unusual that was we can see in the chart below which shows the daily move in 10-year yields in percentage terms. 

Some investors in higher-quality fixed-income CEFs like tax-exempt funds are right to be a bit worried given the negative impact that higher rates tend to have on long-duration assets like muni bonds.

The chart below shows the performance of different national muni CEFs over the last 3 days (when 10-year Treasury yields rose 0.13%) versus their official duration. Clearly, there is a decent relationship - the longer the duration the worse the NAV performance. 

What can investors do to stay ahead of this dynamic? 

Most fixed-income CEFs publish their durations on their websites which investors can easily look up. An alternative is to use our CEF Tool which shows the sourced duration alongside other metrics for a number of relevant sectors.

Currently, we are overweight the higher-yielding muni funds like NMCO (which is an outlier in the chart above in the upper right), CMU, OIA and a few others since these funds can digest rate rises more easily than higher-quality funds which trade at tighter credit spreads.

Thanks for reading. 

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Analyst's Disclosure: I am/we are long NMCO, CMU.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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