Weekly CEF Market Report - March 28, 2021
Macro Picture
You're going to need a wider canal.....
The markets were again mixed this week as it searches for direction between the reopening trade and interest rates. Small caps entered a correction this week which could be signaling a potential pause or even reversal in their market leadership.
Some of the market direction weakness could be due to some virus news including a rising case load again and AstraZeneca news. On the former, cases loads are up 7% in the last week and renewed lockdowns continued in Germany and a few other locations.
We also had some weaker economic data come out including existing home sales being down 6.6%, new home sales down 18.2%, and durable goods orders falling 0.8% in February. Inflation data remained muted, however, with the PCE index up 1.4% yoy, falling from 1.5% the month before and still well below the Fed's target of 2.0%.
Interest rates fell on the week with the 10-yr yield dropping from 1.73% to 1.67%.
Lastly, global shipping remains a concern (and a potential toilet paper shortage) by a clogged Suez.
Commentary
Taxable bond CEFs continue to tighten up nearing par, closing in on the couple of days about 13 months ago when they reached -1.3%. That was the week of the 22nd of February 2020. The week prior (Feb 15th) the market hit the highs pre-Covid but taxable bond CEF discounts were -2.2%. A week after the discount tights on Feb 29th, they had widened precipitously to -6.2%. While it was a brief "tight", it nonetheless hit that -1.3% level. Today we are at -1.8% so very close (I take out the three CLO funds that have high premiums because of stale NAVs).
We continue to see many funds reach 52-week highs in price as investors hunt for yield amidst a drought in income. Interest rates continue to meander around the 1.6%-1.7% level. I attended a few webinars this week- one with PGIM, one with Guggenheim along with TCW (all shops I highly respect). All three shops noted that they believe we are nearing the end of the interest rate move. So it was good to hear some confirmation bias.
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