With China apparently selling vast amounts of US Treasuries, which in turn has caused yields to rise dramatically, resulting in a corresponding drop in price of this ETF, I'm concerned that an ETF like HPYT won't be able to mitigate the losses, even with its covered-call strategy. Since HPYT is scheduled to pay its distribution today, I'm patiently waiting to determine if my recent steep losses will be somewhat reduced by the distribution. I'm seriously considering getting out of HPYT entirely due to the unintended consequences.
Am I correct in my thinking? I don't have a lot of experience with ETFs of this type.
Thanks as always for your guidance.
HPYT invests in long term treasury bonds (US) and sells call options against them. Long bonds offer higher yields, and are far more volatile, with high leverage to interest rates. Options premiums are high, resulting in the high yield. The fund is up 2.44% this year. We would be comfortable with it, but investors need to understand how covered call funds work. There is also currency volatility here as well, with the Canadian dollar swinging wildly recently. It paid a 15-cent distribution today. The question is really about the US dollar. While it has been weak, and trade policy uncertainties do not help it, we do not have real concerns about the ability of US treasuries to meet their obligations. We would not be overly concerned on this fund: it is doing exactly what its stated intentions are.