Q: I own HBIL and have noticed that when yields increase, it falls in value. I get that. But when yields fall as they have been lately, the price goes up much more slowly. Can you explain please. Thanks
5i Research Answer:
One cannot be 100% sure here, as it may just be market dynamics and investor appetite, or lack thereof, but the covered call strategy is likely the culprit. The call options will limit gains in bond rally, as positions get called away. The higher-than-average distribution also plays a role, as each month 9.5 cents has to be paid out, and this can influence trading and unit price often will decline on the ex-distribution date, resulting in some natural decay of NAV if more is paid out than earned.