Closed End Bond funds
I'm wondering what effect all the instability over the insured bond situation and the insurers (e.g., Amback, MBIA, etc.) might have on closed end bond funds like the Korea Fund for instance. Enlightenment would be greatly appreciated! Thanks.
Answers
653 points
DaveDiggz answered 10 months ago …
Hey Rumpole, my feeling is that the individual investors who are in bond funds won't have any problems. Just because the insurers get downgraded doesn't take away the ability for the bonds to continue paying interest and principal. However, for institutional investors, this presents a problem (i.e. some money managers can't invest in any debt that has less than stellar credit ratings, etc.).
It'll also hurt municipalities in the sense that it'll be harder for them to raise money.
Here's a great article on municipal bond funds:
http://www.smartmoney.com/decode/index.cfm?story=20080212-bond-insurer-downgrades&pgnum=2
2547 points
Oldman answered 10 months ago …
There are several divisions of closed-end bond funds (visit the ClosedEnd Fond association's home page), but some hold corporate; some hold low rated "junk" debt; others hold government debt; etc. I guess the one's with the biggest discount to NAV would be the one's with the largest exposure to financials. And the ones with the largest decreases in NAV's would be those that instituted a policy of "constant dividends", where some of the payments are not income, but a return of capital, because income hasn't kept up. The fund you asked about does have some exposure to financials.
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