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  5. HBND: MY ERROR ! [Hamilton U.S. Bond Yield Maximizer ETF]
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Q: MY ERROR ! I asked the question ... "I have recently come across some US covered call ETF's offering +10% returns on ES Bonds. Sorry, don't have the ticker. They are on streaming platforms and flash by before I can write then down. Can you comment on the danger of such an investment, the stability of the dividend as interest rates are certain to shift. Thanks ! " BUT, I meant to type US (not ES). SORRY. Please deduct a few additional questions due to my typo.
Asked by Jim on October 05, 2023
5i Research Answer:

There are some new covered call bond ETFs, such as the HBND ETF which targets a 10%+ yield and writes call options on roughly 50% of its holdings. 

The way this ETF is structured is that as interest rates, or even the expectation that interest rates rise, this ETF's monthly distributions will benefit. This is for two main reasons; 1) the yield on the underlying bond holdings will rise, and 2) rising yield means bond prices fall, which means the covered call portion of the ETF will benefit. In a rising yield scenario, the unit price of the ETF will likely be negatively impacted, however. In a declining or stagnating interest rate environment, this ETFs distributions will be the most at risk. The yield on the underlying bonds will decline, and the covered call portion will be negatively impacted (as bond prices rise). 

If an investor feels that interest rates will continue to rise, then we feel this bond ETF can perform well, however, if an investor feels that rates will stagnate or decline, this ETF may see some capital appreciation, but its yield can be impacted.