Eaton Vance did terminate the Eaton Vance High Income 2021 Target Term Trust ( EHT) however target term CEFs are more likely to terminate since their assets typically match the termination date and the fund simply runs out of assets.Ī non-target term fund like ETX is more likely to be converted into a perpetual CEF since all of its assets will still be around by the time the termination date rolls around. If ETX were a Nuveen fund there would be little need for discussion since Nuveen has been terminating (or offering investors the economically identical exit at the NAV via a tender offer) like clockwork on its own large population of term CEFs.Įaton Vance does not have a similarly large term CEF population so it lacks the track record of Nuveen. The key question from a forward performance profile is whether the fund will actually terminate on its expected termination date in 2028. The fund's leverage is slightly below the sector median at 33% versus 38%. The fund has a similar allocation to the broader tax-exempt sector with a slightly lower AAA allocation and a higher AA allocation. The fund boasts a duration of around 4 which is about half the typical Muni CEF and a quarter of some of the very long duration options such as NMCO and others. What's particularly notable about EXT in the overall Muni CEF sector is its lower duration profile as we can see below. The key takeaway here is that a fund like ETX which focuses on shorter-duration and higher-quality bonds is a good fit for the current market environment. In 2022 we highlighted strong reasons to buy high-yield corporate bonds as credit spreads moved swiftly north of 5% (and overall yields north of 9%) however at current level of yields and credit spreads, riskier credit assets are much less appealing as a destination for new capital. The chart below shows that high-yield bond credit spreads have tightened to 4.18% off their 5.99% peak in 2022. The second key dynamic that is top of mind for us is the relatively tight level of credit spreads. This makes shorter-duration bonds somewhat more attractive. buying longer-dated bonds is not particularly well compensated right now as it has tended to be historically. What this means is that taking on more duration risk i.e. 20Y tax-exempt Muni bond yield less 10Y tax-exempt Muni bond yield) the curve is unusually flat. We can see this better for the tax-exempt market in the following chart which plots different tax-exempt yield curve levels, showing that outside of the 10s20s (i.e. The Treasury curve is the only one that is inverted however, the other two are relatively flat for their own history. The chart below shows the yield curves of the Treasury, tax-exempt and taxable Muni markets. In this section we touch on why ETX is a decent fit for the current fixed-income market environment.Īs we have highlighted previously, the two key market dynamics we are watching at the moment are inverted / flat yield curves and relatively tight credit spreads. The fund's lower beta comes from its slightly below-median leverage level and shorter-duration while the term structure also contributes to a lower volatility profile as well as potential upside from discount amortization in case of termination. In this article we highlight the Eaton Vance Municipal Income 2028 Term Trust ( NYSE: ETX) - a tax-exempt Muni CEF, trading at a 4.16% yield and a 6.6% discount.ĮTX can be an attractive choice for income investors for a few reasons - its lower beta, its good fit for the current market environment and its term structure. This article was first released to Systematic Income subscribers and free trials on Feb.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |