I think what this recent MBS selloff is telling us is that the easy money really is gone and who knows what is about to happen, so took advantage of the mini-recovery last 2 days to sell out. I figure in the last year I've earned about 4+ years worth of expected returns, so I will happy to sit on the sidelines and wait to see what happens before diving back in. Worst case, all I'm risking is a buck or two of upside if NAV holds up and the discount closes, but it is really hard to see a lot of NAV growth from here. I don't think holding this is an awful idea, assuming the distribution holds steady, but I have a feeling at some point this year I will want some dry powder.
I think this is a sensible post. The question we have to be asking ourselves is, is this a start of a trend higher in rates or a panic attack on a blip higher? It sure looked like a panic attack yesterday.
I find it hard to believe that the "recovery" is anything other than a result of massive flow of QE into stocks and as soon as QE ends the bottom falls out again - this is hard to argue with since any mention of taper sends the market into a spin. If rates do go higher it will stump off any recovery in house prices and the economy for sure.
So unless the powers that be lose control of the bond mkt i feel we are a long way off sustainably higher rates. In the meantime investors still need some yield and will likely support these types of investments. Its interesting that yesterday and the day before the NAV hardly budged. It also seems odd that such a high quality fund is trading at a discount.