Yellen, the yield curve and floating rate funds......

JJM58

Last week Yellen "slipped" that Fed Funds or the Discount Rate could be hiked in 6 months or so......
in response, the "2 to 10" and the "5 to 10" spreads flattened, with most action on the short end.

I have heard that floating rate bank loan funds would be the best place for debt allocations when
short rates began their move higher......

I have not noted any real move in the floating bank loan mutual funds or the floating rate closed end
funds, who I would have thought would have moved higher on news of the Fed Chair telling the market
short rates are on the move in Spring 2015.

Can anyone provide me with insights on how/when I should see positive action in my floating rate funds.

Thanks for any help.

bee

Timing these moves as an individual investor seems beyond my pay grade. I'm planning on putting my trust in a good multisector bond fund manager. I believe LSBRX will navigate through these transitions well. I also believe managed asset allocation funds will perform well...funds like OAKBX, PRWCX, VWINX, VWELX, FPACX, BUFBX, USBLX.

Ted

@JJM58: Most experts don't expect a rate increase until the June of 2015.
Regards,
Ted
http://www.bloomberg.com/news/print/2014-03-19/money-markets-signal-no-fed-target-rate-increase-until-mid-2015.html

rjb112

@JJM58: Which floating rate funds are you in? By the way, I watched Yellen's news conference. You mentioned, "Last week Yellen "slipped" that Fed Funds or the Discount Rate could be hiked in 6 months or so". Actually, her '6 months or so' comment referred to After the end of QE, not 6 months or so from now.

@bee: Timing the bond moves is also way beyond my pay grade. We might be in the same pay grade. I like your idea of LSBRX except the expense ratio of 0.92% seems very high to me, considering the low yield on bonds. I've always been quite impressed with Dan Fuss when I've seen him on TV.

hank

Good question. At around 12% PRFRX is one of my larger holdings. I'm also surprised it hasn't done better. The "big bad bond rout" has been one of the most overly-forecast events in financial history. Not to say it isn't looming - but the speed and extent of the run-up in rates and subsequent carnage in bonds have been over-hyped for several years now. As you surmise, floating rates offer some immunity against a steep run-up and should benefit from a higher rate environment. While the 10-year has edged up to around 2.7% from the ridiculously low 1.5% breeched a couple years ago, the move's been gradual - certainly not deserving of the "catastrophic" moniker.

Turns out the Fed's new "transparency" hasn't really been all that transparent. For years now they've been repeatedly altering course on earlier pronouncements - most recently abolishing their 6.5% unemployment target. Suspect it's in part the nature of their work: to attempt to manage investor expectations, even if it means repeatedly abandoning previously stated positions. To me the term "gobbledygook" aptly applies and I pay little attention to their semi-monthly pronouncements (but a lot of attention to their actions). Regards

Quote: "Rumors of my death have been greatly exaggerated." (Mark Twain)

MOZART325

Many of the floating rate funds own loans with Libor floors that ensure a minimum interest rate of three or four percent. The interest rate payment on many of these loans will not start rising until the Libor rate exceeds three per cent.

MOZART325

This article on Seeking Alpha from last year describes some of the moving parts in the senior loan closed-end funds:

http://seekingalpha.com/article/1111761-will-senior-loan-cefs-have-another-good-year-in-2013

JJM58

MOZART325 said:

This article on Seeking Alpha from last year describes some of the moving parts in the senior loan closed-end funds:

http://seekingalpha.com/article/1111761-will-senior-loan-cefs-have-another-good-year-in-2013

Thanks, Mozart325, for the info on CEFs, leverage & senior floaters.