The week ended 1/16 saw generally modest gains in bondish CEF market prices and mostly stable to mildly improving NAVs. New dist-corrected 2 year highs were put in by PAXS PFN and ETF HYG. PHK made a new high and threw a weekly MACD buy signal and GOF nowhere near a high also put in a buy signal. As usual, little changed in underlying rates and curves: Fed funds futures predict a mid-year cut and with less certainty a year end cut, leaving policy rates at 3.12% The year bill one year forward is 3.65% and Fed favorite 5yr inflation 5yrs forward is smack on 2.25%
CPI headline and core came in well under 3% a pair. New and existing home sales were up slightly from a low base. PPI came in well over 3% thanks to tariff "policies," and the Fed Beige Book painted an anecdotal picture of positive but tepid growth.
This week features PCE estimated up a benign +0.2% headline and core and +2.8% a pair year over year. Consumer confidence is seen remaining low and flat. Not much to see or react to except the policy and quack tornado emminating from our nation's capital.
So what is happening? IMO markets are in the process of rationalizing a 3% Fed policy rate near year end. In "neutral," 3% Fed funds are associated with a 10yr Treasury around 4.4%. Floating rate CEFs holding better (public) credits have stabilized and recovered from recent lows ---- in recognition that Fed funds ain't likely going to 2% or 1% or zero. What has NOT adjusted to this vision of "normal" are bondish CEFs, with total returns of 11+ to 16+% that IMO will provide extremely attractive total returns until --- in some distant future --- it is time for Fed to tighten again.
Aside: the portfolio allocation I held at the beginning of January was the one that would have passed to my daughter in the event my surgery went poorly, constructed for durability with little or no management.
Regards, Dick
