PFN

March 2006: This is junk (BB), but it is run by PIMCO, so that lets me sleep easy. It’s a floating rate trust, which yields 8.5% today. Then interest rate tightening cycle has not ended, so there’s no reason to believe the yield will fall.

If Bernanke raises a couple of times and then let’s things remain steady, it may be time to sell, before the yield collapses, and the price does too. Right now, it seems that won’t happen until Q3 or Q4 at the earliest.

Sep 2006: The interest rate cycle might be at a plateau, for a few months at least. PFN has not fallen. In fact the price ($18.90) and yield (9%) have both risen slightly over the last 6 months. Review again in Q1 of 2007. [Update Feb 2007: Fed rate still steady. PFN yield @ 9%, but a 4% premium has built up in the price — $19.20 now]

Update Jan 2009: With the crash in the market, PFN went below $6, with a yield going arounf 17%. It is now $7.60, up a little bit from it’s lowest, but still yielding 14%. People are worried about all types of debt, particularly the low-grade stuff in this fund. In addition, the fund (like many other such funds) is leveraged about 30%. That debt is short-term and constantly renewed. A credit crisis raises short-term rates (private rates like LIBOR) even while the Fed is lowering it’s rate. So, that fear also hit the fund.

At these yields, the fund looks attractive to me, and I still own some.

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