A Simple Strategy To Get 6.5% Dividends From Surging Bond Yields

Key Points:

• Treasury yields, especially on 30-year government debt, have risen to around 5.2%, nearing a 19-year high due to inflationary pressures from factors like AI-driven economic growth, oil price surges, and government overspending.
• While rising yields signal challenges for the US government and debt-laden consumers, they also present opportunities for investors to lock in high, reliable income—potentially above 6%—by investing in long-term Treasuries and bonds.
• Corporate bonds remain attractive as their yields typically rise alongside Treasury yields, creating potential for higher income; recent divergence between Treasury and corporate bond prices suggests sustained investor interest in corporate debt.
• Certain closed-end funds (CEFs), such as the Highland Opportunities and Income Fund (HFRO), have benefited from increased demand for rate-sensitive assets, offering a 6.5% dividend and trading at a significant discount to net asset value, indicating potential value for investors.
• However, increased investor buying may reduce yields as prices rise, and with some funds already yielding below the average CEF yield of 8.9%, there may be limits to the gains from narrowing discounts and rising prices.