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Hilltop's Grant Recommends Buying Closed-End Bond Funds (Audio) · Bloomberg Intelligence

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  Speaker 1: down six thirty seconds with the yield of one point
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  Speaker 1: eight five percent. And that's a Bloomberg business flash. You're
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  Speaker 1: listening to taking stock with pin Box and Kathleen Hayes
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  Speaker 1: on Bloomberg Radio Fetcher. Yellen says that yes, a rate
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  Speaker 1: high is appropriate and coming months be a little bit
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  Speaker 1: of a sell off in the bond market with the
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  Speaker 1: benchmark tenure yield down about six thirty seconds, make that
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  Speaker 1: three sixteen seals at one point eight five So how
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  Speaker 1: about a forecast for that ten year no yield going
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  Speaker 1: down to one point two five per cent. Well, that's
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  Speaker 1: exactly what our next guest is looking for. We're very
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  Speaker 1: happy to welcome Mark Grant back to taking Stock. He's
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  Speaker 1: chief Fixed Income Strategies for Hilltop Securities, joining us from
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  Speaker 1: Fort lauder Day. All, good afternoon, Mark, Good afternoon, Kathleen.
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  Speaker 1: It's great to be with both you and Pim. So
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  Speaker 1: Janet Yellen, did you take away anything special from her
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  Speaker 1: remark speaking to Greg make you at Radcliffe Day today.
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  Speaker 1: I said earlier in the year that I didn't think
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  Speaker 1: and I still don't think that it's appropriate that the
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  Speaker 1: Fed do anything. I now have a feeling that they
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  Speaker 1: are going to make one move, probably in June, maybe
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  Speaker 1: July bases points. I think the odds are about now
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  Speaker 1: that's coming. The way she sounded today, I think it's
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  Speaker 1: a mistake, but I think that's what's gonna happen. Hey, Mark,
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  Speaker 1: I just want to understand something, because if you look
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  Speaker 1: at the debt that countries and people have taken on,
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  Speaker 1: this debt funded consumption, it works great for a while,
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  Speaker 1: but doesn't it end at a certain point. Well them,
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  Speaker 1: right now, according to the Rating Agency fits, there's nine
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  Speaker 1: point nine trillion dollars of debt that's yielding less than
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  Speaker 1: zero in other words, of negative yielding debt, and the
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  Speaker 1: ECB is making noises that it's going to expand its program,
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  Speaker 1: as well as the Japanese Central Bank, So interestingly enough him,
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  Speaker 1: I have a divergent opinion here, not unusual for me,
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  Speaker 1: but um, I think the FED may raise the rate
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  Speaker 1: basis points. But I'm looking, and we've seen so far
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  Speaker 1: in the last thirty days a yield curve that is
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  Speaker 1: flattening significantly and may even go negative. And the reason
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  Speaker 1: for that is the tremendous amount of money that's coming
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  Speaker 1: out of Asia and out of Europe, and it's buying
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  Speaker 1: longer term US security is not just treasuries, but corporate
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  Speaker 1: bonds and other mortgage back bonds, and so I see
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  Speaker 1: a flattening yield curve, and I'm looking for the tenure
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  Speaker 1: to head down to one in a quarter because demand
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  Speaker 1: is going to be much stronger in my opinion, than supply.
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  Speaker 1: That seems to me to be so important here for
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  Speaker 1: people to think about when they think about the bond market.
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  Speaker 1: Of course, the treasury marketing me up by treasuries, but
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  Speaker 1: it obviously helps set the price in the yield for
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  Speaker 1: all kinds of fixed income in US and around the world.
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  Speaker 1: Is that it's not so much necessarily that yields will
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  Speaker 1: go a lot lower because we're having a recession or
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  Speaker 1: that there's deflation the United States. It has much more
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  Speaker 1: to do just with investors, particularly big institutions around the world,
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  Speaker 1: saying I need some yield and compared to so many
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  Speaker 1: other parts of the world, this is where I'm going
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  Speaker 1: to get at US, even US treasuries. I think that's correct, Kathleen,
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  Speaker 1: as a matter of fact, and almost nobody in the
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  Speaker 1: media talks about this. But I have a solution to
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  Speaker 1: the problem, which is to buy closed den bond funds.
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  Speaker 1: And recently we saw Bill Gros come out saying he
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  Speaker 1: thought also was the best solution, and we've seen Randy
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  Speaker 1: Forsyth over Barons be very positive. But I spent about
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  Speaker 1: forty hours over a weekend once and went through the
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  Speaker 1: closed in bond funds and using Bloomberg for a lot
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  Speaker 1: of the research, took it down to eleven bond funds,
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  Speaker 1: and these eleven bond funds the last time I did
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  Speaker 1: the calculation, pay on average ten point to nine. That's
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  Speaker 1: ten point. They trade like equities. In other words, there's stock,
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  Speaker 1: but instead of the ownership being General Motors or IBM
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  Speaker 1: or something, the ownership is a bond portfolio, diversified bond
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  Speaker 1: portfolio managed by black Rock or BABS and Mass Mutual
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  Speaker 1: or PIMCO or some of the very biggest names out there.
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  Speaker 1: And they also, interestingly enough, pay every month, so you
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  Speaker 1: get to check every single month, and you're getting over
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  Speaker 1: ten percent with a monthly check. And I don't know
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  Speaker 1: better place to put money. What are the risks? Mark? Well,
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  Speaker 1: the perpetuals like stocks, meaning that they don't have a maturity.
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  Speaker 1: So if you're comparing them to have their bonds pim
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  Speaker 1: you would say that it's a perpetual security. They have
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  Speaker 1: some leverage in them, and the good news for a
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  Speaker 1: person or an institution. And by the way, I'm in
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  Speaker 1: talks right now with some of the biggest institutions in
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  Speaker 1: the world about getting into these um so there's some
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  Speaker 1: leverage in them. But even pre the FED doing something,
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  Speaker 1: or after the FED doing something, they're still in such
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  Speaker 1: low interest rates, and the differential between the bond yields
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  Speaker 1: and the UH leverage is so great I'm not concerned
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  Speaker 1: about it. UH. And then there also is a question
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  Speaker 1: of liquidity that I can also report because I do
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  Speaker 1: business with a lot of very large institutions that there's
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  Speaker 1: very little liquidity in anything these days. But those would
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  Speaker 1: be the risks in these uh gurity. So in a
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  Speaker 1: nut shelf for a novice investor who may not know,
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  Speaker 1: tell us, okay, in a show, what is a closed
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  Speaker 1: end bond fund? How does comparison to just a basic
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  Speaker 1: bond fund, mutual fund? You know, it's put a plain vanilla.
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  Speaker 1: Is it something that a retail investor can buy easily?
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  Speaker 1: Mark ers is something that you have to work with
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  Speaker 1: the mark rants of the world to buy. No, you
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  Speaker 1: can buy it very easily, just like you can buy
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  Speaker 1: IBM stock. The the the issue here which is the
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  Speaker 1: same and inequities. You have to know what you're doing.
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  Speaker 1: You have to do homework. You have to differentiate between
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  Speaker 1: the bond funds to close down bond funds that look
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  Speaker 1: attractive and the ones that aren't. So yes, you have
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  Speaker 1: to know something about these things. But you can buy
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  Speaker 1: them exactly the same through anyone you want, any broker
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  Speaker 1: dealers that you want is you would buy an equity.
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  Speaker 1: What I am looking for here, and even with if
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  Speaker 1: the Fed does decide to do something in a period
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  Speaker 1: of incredibly low interest rates, even if you took from
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  Speaker 1: the beginning of this year to today, the Dad Jones
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  Speaker 1: is up four and these bond funds are paying over ten. Well,
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  Speaker 1: I'll take the yield, thank you very much, and I'll
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  Speaker 1: take a monthly check versus a stock with the dividend
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  Speaker 1: that pays four times a year or a bond that
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  Speaker 1: pays twice a year. I think this is the absolutely
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  Speaker 1: best thing in an institution or a person could put
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  Speaker 1: their money in at the present time. Mark do lingering
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  Speaker 1: negative interest rates just draw more money into the United States,
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  Speaker 1: into the very assets that you've described. Yes, and that's
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  Speaker 1: exactly what I think is going on. You know, Europe
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  Speaker 1: operates differently than the United States. The government basically puts
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  Speaker 1: the arm on the institutions over there that manage the
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  Speaker 1: pension money, manage different things for the governmental entities to
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  Speaker 1: buy bonds denominated in euros and so forth. However, what's
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  Speaker 1: taken places with the expansion of the European Central Bank's
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  Speaker 1: program to buy more corporate bonds as well as sovereign
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  Speaker 1: debt bonds, and they may even expanded into equities. You're
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  Speaker 1: seeing the ability of a lot of the European institutions
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  Speaker 1: now to come to America put money in American securities
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  Speaker 1: as arguably the safest place to put money, it's certainly
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  Speaker 1: not the place to get the most yield. Just for
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  Speaker 1: a comparison for your audience, PIM, the ten year German
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  Speaker 1: sovereign debt is yielding zero point one four per cent
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  Speaker 1: and UH that's in comparison PIM to the United States
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  Speaker 1: tenure Treasury, which is yielding UH closed today at one
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  Speaker 1: point eight five. And then if you take going into
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  Speaker 1: corporate yields, which is where I like presently, or some
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  Speaker 1: of the mortgage yields, you're just picking up a tremendous
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  Speaker 1: amount of yield over what you can get most of
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  Speaker 1: the rest of the world. Could you just there, is
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  Speaker 1: there a couple of funds, a couple of names you
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  Speaker 1: want to throw out to our listeners of an example
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  Speaker 1: of a good closed end bond funds so they can
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  Speaker 1: start educating themselves and learning more about these vehicles. I
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  Speaker 1: wish I could. Unfortunately, Kathleen, my compliance department forbids me
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  Speaker 1: from doing that, and someone would have to get ahold
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  Speaker 1: of lead for the funds that I like, but I
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  Speaker 1: can't state them in public. Thank you very much for
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  Speaker 1: spending time with a smart. Grant is the chief fixed
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  Speaker 1: and strategist for Hilltop Securities. He's based in Fort Lauderdale, Florida.
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  Speaker 1: This is taking Stock on bloom Burke. I'm Pim Fox.
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  Speaker 1: We've been talking about Janet Yellen and her speech today,
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  Speaker 1: her conversation rather at Harvard University and Kathleen. It seems
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  Speaker 1: as though it hasn't really done very much to the
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  Speaker 1: stock market. It did fall right during her conversation, but
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  Speaker 1: afterwards stock market has come back. SMP five or two
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  Speaker 1: tenths of a percent down, Jones Industrial Average up one
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  Speaker 1: tenth of a percent. You're listening to taking Stock