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To: Tommaso who wrote (261948)	9/26/2003 11:06:08 AM
From: Knighty Tin	Respond to of 436258

T, The loss of principal due to a rise in rates is part of the problem. But, since these are leveraged, you also run the risk of the cost of borrowing going up. Since that is currently 1.1% on weekly auctions, I don't think it's coming down much. So, let's say you have 1/3 leverage. If bonds decline 5%, your portfolio's NAV goes down 7.5%. Then, if your cost of borrowing to support the extra third goes up from 1 to 3%, you receive a lower yield. Which would probably result in a higher discount. So, lower prices at the same time as lower yields leading to higher discounts are my definition of volatility. Am I worried in the very long term? No, the quality is good and they can always de-leverage and open end the funds, wiping out any discount.