Re: high leverage, low credit quality and a large premium…
High leverage and low quality are enough by themselves. Premiums and discounts are a manufactured distraction in my view. They don’t enter into my calculus. And I have to respectfully disagree, premium does not “have an effect”. It does not have agency. It’s an artifact, a measurement, divorced from cause, effect, or any indication of direction. When the market tanks, the market tanks.
When interest rates decline, bond prices will go up, yield down. What happens to the difference between price and NAV is of no consequence to the overwhelming influence of interest rates. Which is one reason I ignore premiums and focus on 10-year CEF lows. This is a case of missing the forest for the trees.
“If the market hadn’t bounced back…” That’s a mouthful. In my experience the market always bounces back. I can’t think of a time in the last 50 years when it hasn’t. I don’t panic sell at bottoms. I add. I looked up my EVT trades. I made 12 purchases last April while the market bottomed. As I’ve said several times, I buy based on price. I’m never distracted by premium/discount measurements. I know you find them useful, and I respect that. I find them a complete distraction from the two things that are overwhelming important: price and direction. If macro events are pushing a sector higher, particularly from a temporary trough, I want in.
If anything, I’d say that the premium is telling you that the NAV is going higher and the market knows it. |
