After a brief sell-off after the election due to the impact of rising interest rates, closed-end funds have been on a one-way track to higher returns.

A large part of the reason for this strong performance is the unsually conducive environment of lower yields and higher stock prices. This type of co-movement is relatively unsual in markets because lower yields tends to be associated with a risk-off environment.

In the current case however, we are witnessing a split in bond and equity returns. The benign explanation for this is that equities are heading higher because of policy and regulatory events which don’t have an outsize influence on bond yields. The less benign explanation is that similarly to 2008, bonds and equities are disagreeing on the macro picture with bonds taking a more pessimistic view.

Watch this space!

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