As the economic outlook continues to improve, lower Treasury bond prices and higher yields seem to be putting pressure on several of the key high-yield bond funds on the market seen in closed-end funds and in exchange-traded funds or exchange-traded notes.  The rise in rates is happening at a faster rate than junk bond yield spreads over Treasuries.  Still, the drops have been extreme as Treasury yields have risen rapidly.

Three of the more actively traded closed-end funds we track are Western Asset High Income Opportunity Fund Inc. (NYSE: HIO), Western Asset Managed High Income Fund Inc. (NYSE: MHY), and the PIMCO High Income Fund (NYSE: PHK).  Those are not the only closed-end funds at all but they are three of our go-to funds.  In ETF and ETN products we usually track iShares iBoxx High Yield Corporate Bond (NYSE: HYG) and the SPDR Barclays Capital High Yield Bond (NYSE: JNK).  The junk-bond ETF universe has made out much better in recent days than the closed-end fund segment of junk bonds.

Western Asset High Income Opportunity Fund Inc. (NYSE: HIO) is down another 1.5% at $5.90 mid-Monday, and its last ex-date for a $0.045 dividend was November 17.  Its website listed a 3.54% discount to an NAV of $6.21 but that is on its own site and may be delayed.  Shares were at $6.22 after that and that was the highest close of late back on December 1.  That represents a drop of some 5.1% this month so far.  Its 52-week range is $5.39 to $6.58 and the current dividend yield is listed as roughly 9.0%.

Western Asset Managed High Income Fund Inc. (NYSE: MHY) is down over 2% Monday at $5.80 and its last ex-date for the $0.05 dividend was November 17.  Its prior $5.93 price listed on the website was put at a 2.15% discount to its listed NAV of $6.06.  Shares entered December at $6.30, indicating a larger drop of roughly 8%.  Its 52-week range is $4.05 (from flash crash) and adjusted from roughly $5.50 to $6.74 in the last year and the current dividend yield is listed as roughly 9.6%.

PIMCO High Income Fund (NYSE: PHK) is down over 4% mid-Monday at $11.95, and that is listed on the PIMCO site as a 40% premium based on Friday data.  It just went ex-dividend for its $0.121875 payout just last on December 9.  On an adjusted close basis, the December high close was actually $13.14 just on December 7, for a standout drop of just under 10% (9.95%).  Its 52-week range is $8.81 (from flash crash) and adjusted from roughly $10.95 to $13.73 in the last year and the current dividend yield is listed as roughly 12.2%.

The iShares iBoxx High Yield Corporate Bond (NYSE: HYG) is flat on the day at $89.39 is much higher priced and based on the iBoxx $ Liquid High Yield index.  This one peaked just above $91.090 in early November and its last ex-date trade was December 1 with a $0.588 dividend.

The SPDR Barclays Capital High Yield Bond (NYSE: JNK) is down only $0.01 mid-Monday at $39.95 and December 1 was its ex-date trade for its $0.279 dividend.  It has barely traded above $40.00 throughout December and has held up much better than its peers.

It is pretty evident that the two more active ETF/ETN products are holding up better than the closed-end fund segments.  With more fluctuation between premium and discount to net asset values, closed-end funds often react more based upon buying demand versus seller supply of shares rather than the value of the underlying index comparisons.  We’ll be looking here to see if the closed-end funds have reached levels interesting enough to consider.

JON C. OGG

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