Morning Note | March 24, 2022

Good Morning!

Futures are bouncing back from yesterday's decline with the markets up about 0.5% today.  The 10-yr is also rebounding from yesterday and is up nearly 5 bps to 2.37%.  Oil is up small after jumping more than 5% in yesterday's session.  Russian stock market trading resumed with their markets up thanks to Russian state welfare buying.  

The rally stalled a bit on Wednesday with stocks closing lower after the strong rebound of the last week.  Global markets were largely down in line with US markets.  Oil was up sharply as discussions between Western "allies" around further sanctions as well as avenues to reduce dependence on Russian oil commenced.

Rates pulled back after the strong move higher the last few trading days.  Quarter-end rebalancing is being blamed for the buying.  Despite the pullback, the 10-year yield is up 0.25% on the week.  Markets are pricing in a more aggressive (read: hawkish) Fed including possibly the Fed taking action to steepen the yield curve through their sale of long-dated treasuries from their balance sheet.

Markets have found some footing recently, as the initial dual shock of the war in Ukraine and Fed rate hikes has begun to run its course.  On CNBC, I heard what appeared to be alternating guests all day stating that the fundamental backdrop supported the rebound with others saying this was just a bear-market rally. 

CEF NAVs were mixed with loans and high yield up (in a down market) with munis down about a quarter-point.  Discounts on munis were marginally tighter but other areas in the credit space were, for the most part, wider.  

Discounts over the last week have been stronger nearly across the board but at the same time, NAVs are still trending lower.  In my report out later today, I detail that NAVs falling is something that needs to be rectified before investors should buy CEFs in size.  Discounts seem to be closing by price falling towards NAV, which is "bad tightening."

In the last month, there are a few bright spots on NAV performance.  Real estate, for instance, is up 3% on NAV and 1.5% on discount for a 4.5% total return.  Utilities are up over 6% on NAV and 1.6% on discount.  Convertibles and covered calls are up about 2% on NAV and 1.7% on discount.