CEF Report April 2022 | Further Healing In The CEF Market

Summary

• CEF NAVs were mixed in March with beta sectors doing well with the equity market rebound and fixed income continuing its weakness.

• Discount returns were positive in the month - surprisingly - but only modestly so.

• The senior loan market looks attractive relative to the longer- duration areas of the market.  But it is NOT a cure-all for higher rates.

We saw a split in the CEF market in the month of March.  Instead of a broad-based sell off in CEFs across the entirety of the space, we saw equity CEFs rebound while fixed income CEFs continue their weakness.  The equity market has recovered the majority of the losses since the start of the year but the bond market has not seen the same sort of rebound.

We can see that in the chart below with the turning point on March 14th.  The purple line (the S&P 500) has moved substantially higher leaving the Aggregate bond market (orange) and high yield bond market (BLUE) behind.

Data by YCharts

This is leaving investors to ask themselves why they would even own bonds in the first place.  In a rising rate environment, this is often the case.