Run, don’t walk, away from those friendly Chase bankers.
The article you cited gives a good explanation of why: bonds have had a great run for three decades because of declining interest rates. With interest rates now near zero, this can’t continue. If rates merely stay at their current level those bond funds won’t have the stellar rate of return they’ve had recently. If rates creep up, those bond funds will quickly generate very negative returns.
In effect, closed end bond funds have doubled down on their bet that interest rates will continue to fall. They have done this by using leverage plus being close-ended, such that their market value can exceed or be less than their face value of their holdings upon liquidation.
Does this mean you are stuck with near-zero rate of return (actually negative, considering inflation) on your liquidity until you need it? Yes. Thank you, Ben Bernanke.
There is growing evidence we are in a giant bond bubble, much like the housing bubble of 2006. One site pushing that theme is PrudentBear.com.
