The Aleph Blog » Blog Archive » Yield = Poison

Yield = Poison

I have resisted writing this for some time, but there are certain points in the bond market where yield is poisonous.  I have a rule of thumb that says when spread relationships get too tight, give up yield to gain possible capital gains in the future.  That’s why I made the post at RealMoney late yesterday.  When everyone is grasping for yield, that is the time to avoid it, and aim for capital gains.  That is what I am doing now.

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3 Responses to Yield = Poison

  1. ed douglas says:

    This is a subject that has concerned me of late. I have several closed end income funds that were purchased at a discount, that are now trading at nice premium. One for example, ZTR which has gone from a 10% discount to a 10% premium giving me over years worth of income in the capital gain. Although the income is still attractive, does your rule of thumb call for a rebalancing when the premiums reach a certain level.
    Enjoy your artcles in RM and look forward to this new site

  2. Ed, thanks for the kind comments. I have been rebalancing from closed end funds that I bought at a discount, that now trade at premiums, to ETFs that do roughly the same thing. You can see my bond portfolio (for the balanced funds, at

    At present, many closed-end funds are trading at premiums to NAV. To some degree, that is a negative sign for the market as a whole, but that is just one indicator among many.

    This is a time to be satisfied with lower income levels. Ah, to be back in mid-2002, when the panic was thick, and spreads were too. I had the courage to act then, but few others did. That time will come again; as for now, we aren’t losing a lot to move up in quality.

  3. [...] on credit risk and FX.  That’s a big shift for me.  If you remember an early post of mine, Yield = Poison, you will know that I am willing to have controversial views.  Also, for those that have read me [...]


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