PHK - BIT: Better Than A Bond Index Fund, But Still Expensive

2025-05-27 18:23:48 ET

Summary

• Rising yields and inflation risks make U.S. dollar-denominated bonds unattractive, challenging the traditional safe-haven status of bond funds.
• BlackRock Multi-Sector Income Trust offers a high yield and outperforms indices on total return, but lags closed-end peers and has high U.S. dollar exposure.
• Recent market shocks and downgrades highlight heightened risks for bondholders, with leverage amplifying downside in volatile environments.
• The BIT closed-end fund is heavily invested in junk bonds, which may be a better holding than investment-grade bonds as long as the default risk is managed.
• Despite a slight discount to NAV, BIT remains expensive versus peers and recent prices; I recommend waiting for a wider discount before considering an entry.

The BlackRock Multi-Sector Income Trust ( BIT ) is a closed-end fund, or CEF, that aims to provide its shareholders with a very high level of income by investing a variety of different types of bonds and other debt securities from issuers located all over the world. As some readers are well aware, I have been rather hesitant to recommend any bond funds for quite some time now due to the cracks that have started to show in the market. As I stated in a previous article , bond yields have actually been rising despite the Federal Reserve being in the middle of a rate-cutting cycle. For example, on December 31, 2024, the twenty-year U.S. Treasury bond (US20Y) was trading with a 4.86% yield, but today it has risen to 5.03%. We have seen the yields of other long-dated U.S. Treasury securities rise since the start of the year as well:

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