Jeff, If rates go up, they get hit badly, many of them doubly bad, most triply bad. Obviously, the underlying NAV will decline if rates go up and the bonds in the portfolio go down. However, there is also a likelihood that the discount on the NAV will increase in that environment, especially if folks think it is a long term problem. NUV has sold at discounts 7% worse than the current one and NXP has sold at a discount 5% worse than its current one (they have also sold at premiums, but we're talking about the risk level, not the reward potential). Then, most are leveraged, so, they lose on more bonds than they have assets AND the interest rate they pay to borrow this leverage is likely to go up, hurting the payout. NXP and NUV do not have this risk factor, but most muni funds do.
That being said, the yields, risk level and duration of these funds all look favorable for anyone who is in the "I need income" game. |
