Barron's Streetwise
The Problem With Covered Call Writing
Apr 26, 2024
Exploring income strategies in the current market environment, including the complexities of covered call writing. Delving into CMOs, CLOs, and fixed income investments amidst market volatility. Discussing private credit investments and the benefits of diversified loan pools. Exploring yield opportunities and CLO investments as a method for seeking prudent yield. Highlighting the challenges of covered call writing for income generation in a low option premium market.
27:54
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Quick takeaways
- Bank of America predicts lower returns on long-term treasuries in the next decade.
- Private credit offers better risk-adjusted returns compared to traditional credit options.
Deep dives
Investing in Yield: Treasuries and Corporate Bonds
Interest rates and inflation are expected to rise, impacting long-term and medium-term treasury obligations. Bank of America suggests that returns from these assets may decrease in the next five to ten years. The high spread between investment-grade corporates and treasuries may not adequately compensate for risk, making them unattractive options. Triple C-rated high-yield corporate bonds historically have lower returns than bonds with a moderate credit rating.
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