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A while ago I wrote about some of the covered call funds and that I felt that these might act like a bond fund with regard to volatile times in the stock market but be less sensitive when interest rates go up a lot. The chart above revisits the idea by comparing the Madison Claymore Fund (MCN) and one of the Nuveen Covered call Funds (JPZ) against the yield of the ten year US treasury.
On February 15 the ten year yielded 4.1% today it is at 4.52%. A 100 basis point move is said to cause an 8% price decline in a bond (this is simplified). 8% would prorate to 3.36% for an 42 basis point move, like we've had. In that time MCN is down $0.34, which equals a 2.1% drop. In that same time frame JPZ is down $0.07 which equals 0.3%. Lastly the S+P 500 is down 9 points in the stated time period which is a drop of 0.7%.
This is far from conclusive but I feel confident that I don't have it completely upside down. My clients and I own MCN.
1 comments:
Talking about the increasing yield on the 10y......I think rising rates on mortgages are going to put a dent in the housing stocks. It doesn't appear there is a housing stock ETF. If one were available, I think it might be a nice one to buy a put on.
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