Hilltop's Grant Recommends Buying Closed-End Bond Funds (Audio)

to learn more. The stock market is adding to this week's advanced The S and P five funded is on course for its biggest weekly game since March. The equity benchmarks remain higher after Federal Reserve cheer Johnny Yellen said the ongoing improvement in the US economy would warrant another interest rate increase in the coming months. She stopped short of giving an explicit hint that this central bank will act in June. The dollar extended its largest monthly game. Banks,

healthcare and consumer discretionary shares are up the most. We check the markets every fifteen minutes throughout the trading day. Down Industrial lavery is up thirteen points at seventeen thousand, eight hundred forty one s and p f I funded up four points to tens of a percent to two thousand ninety four and azzak is up twenty two points, a gain of half a percent. It's trading at forty nine twenty four. West Texas Intermedia Crude oil down eighteen cents of barrel a third of a percent at forty

nine thirty. It's about gold is down twelve dollars ninety cents announce at twelve O nine eighty ten. Your treasury down six thirty seconds with the yield of one point eight five percent. And that's a Bloomberg business flash. You're listening to taking stock with pin Box and Kathleen Hayes

on Bloomberg Radio Fetcher. Yellen says that yes, a rate high is appropriate and coming months be a little bit of a sell off in the bond market with the benchmark tenure yield down about six thirty seconds, make that three sixteen seals at one point eight five So how about a forecast for that ten year no yield going down to one point two five per cent. Well, that's exactly what our next guest is looking for. We're very

happy to welcome Mark Grant back to taking Stock. He's chief Fixed Income Strategies for Hilltop Securities, joining us from Fort lauder Day. All, good afternoon, Mark, Good afternoon, Kathleen. It's great to be with both you and Pim. So Janet Yellen, did you take away anything special from her remark speaking to Greg make you at Radcliffe Day today. I said earlier in the year that I didn't think and I still don't think that it's appropriate that the

Fed do anything. I now have a feeling that they are going to make one move, probably in June, maybe July bases points. I think the odds are about now that's coming. The way she sounded today, I think it's a mistake, but I think that's what's gonna happen. Hey, Mark, I just want to understand something, because if you look at the debt that countries and people have taken on, this debt funded consumption, it works great for a while,

but doesn't it end at a certain point. Well them, right now, according to the Rating Agency fits, there's nine point nine trillion dollars of debt that's yielding less than zero in other words, of negative yielding debt, and the ECB is making noises that it's going to expand its program, as well as the Japanese Central Bank, So interestingly enough him, I have a divergent opinion here, not unusual for me, but um, I think the FED may raise the rate

basis points. But I'm looking, and we've seen so far in the last thirty days a yield curve that is

flattening significantly and may even go negative. And the reason for that is the tremendous amount of money that's coming out of Asia and out of Europe, and it's buying longer term US security is not just treasuries, but corporate bonds and other mortgage back bonds, and so I see a flattening yield curve, and I'm looking for the tenure to head down to one in a quarter because demand is going to be much stronger in my opinion, than supply.

That seems to me to be so important here for people to think about when they think about the bond market. Of course, the treasury marketing me up by treasuries, but it obviously helps set the price in the yield for all kinds of fixed income in US and around the world. Is that it's not so much necessarily that yields will go a lot lower because we're having a recession or

that there's deflation the United States. It has much more to do just with investors, particularly big institutions around the world, saying I need some yield and compared to so many other parts of the world, this is where I'm going to get at US, even US treasuries. I think that's correct, Kathleen, as a matter of fact, and almost nobody in the media talks about this. But I have a solution to the problem, which is to buy closed den bond funds.

And recently we saw Bill Gros come out saying he thought also was the best solution, and we've seen Randy Forsyth over Barons be very positive. But I spent about forty hours over a weekend once and went through the closed in bond funds and using Bloomberg for a lot of the research, took it down to eleven bond funds, and these eleven bond funds the last time I did the calculation, pay on average ten point to nine. That's

ten point. They trade like equities. In other words, there's stock, but instead of the ownership being General Motors or IBM or something, the ownership is a bond portfolio, diversified bond portfolio managed by black Rock or BABS and Mass Mutual or PIMCO or some of the very biggest names out there. And they also, interestingly enough, pay every month, so you get to check every single month, and you're getting over ten percent with a monthly check. And I don't know

better place to put money. What are the risks? Mark? Well, the perpetuals like stocks, meaning that they don't have a maturity. So if you're comparing them to have their bonds pim you would say that it's a perpetual security. They have some leverage in them, and the good news for a person or an institution. And by the way, I'm in talks right now with some of the biggest institutions in the world about getting into these um so there's some

leverage in them. But even pre the FED doing something, or after the FED doing something, they're still in such low interest rates, and the differential between the bond yields and the UH leverage is so great I'm not concerned about it. UH. And then there also is a question of liquidity that I can also report because I do business with a lot of very large institutions that there's very little liquidity in anything these days. But those would

be the risks in these uh gurity. So in a nut shelf for a novice investor who may not know, tell us, okay, in a show, what is a closed end bond fund? How does comparison to just a basic bond fund, mutual fund? You know, it's put a plain vanilla. Is it something that a retail investor can buy easily? Mark ers is something that you have to work with the mark rants of the world to buy. No, you can buy it very easily, just like you can buy IBM stock. The the the issue here which is the

same and inequities. You have to know what you're doing. You have to do homework. You have to differentiate between the bond funds to close down bond funds that look attractive and the ones that aren't. So yes, you have to know something about these things. But you can buy them exactly the same through anyone you want, any broker dealers that you want is you would buy an equity.

What I am looking for here, and even with if the Fed does decide to do something in a period of incredibly low interest rates, even if you took from the beginning of this year to today, the Dad Jones is up four and these bond funds are paying over ten. Well, I'll take the yield, thank you very much, and I'll take a monthly check versus a stock with the dividend that pays four times a year or a bond that

pays twice a year. I think this is the absolutely best thing in an institution or a person could put their money in at the present time. Mark do lingering negative interest rates just draw more money into the United States, into the very assets that you've described. Yes, and that's exactly what I think is going on. You know, Europe

operates differently than the United States. The government basically puts the arm on the institutions over there that manage the pension money, manage different things for the governmental entities to buy bonds denominated in euros and so forth. However, what's taken places with the expansion of the European Central Bank's program to buy more corporate bonds as well as sovereign

debt bonds, and they may even expanded into equities. You're seeing the ability of a lot of the European institutions now to come to America put money in American securities as arguably the safest place to put money, it's certainly

not the place to get the most yield. Just for a comparison for your audience, PIM, the ten year German sovereign debt is yielding zero point one four per cent and UH that's in comparison PIM to the United States tenure Treasury, which is yielding UH closed today at one point eight five. And then if you take going into corporate yields, which is where I like presently, or some of the mortgage yields, you're just picking up a tremendous amount of yield over what you can get most of

the rest of the world. Could you just there, is there a couple of funds, a couple of names you want to throw out to our listeners of an example of a good closed end bond funds so they can start educating themselves and learning more about these vehicles. I wish I could. Unfortunately, Kathleen, my compliance department forbids me from doing that, and someone would have to get ahold of lead for the funds that I like, but I can't state them in public. Thank you very much for

spending time with a smart. Grant is the chief fixed and strategist for Hilltop Securities. He's based in Fort Lauderdale, Florida. This is taking Stock on bloom Burke. I'm Pim Fox. We've been talking about Janet Yellen and her speech today, her conversation rather at Harvard University and Kathleen. It seems as though it hasn't really done very much to the stock market. It did fall right during her conversation, but

afterwards stock market has come back. SMP five or two tenths of a percent down, Jones Industrial Average up one tenth of a percent. You're listening to taking Stock