NLY - BKT: Understand What You Are Buying MBS Will Likely Deliver
2024-04-03 18:25:50 ET
Summary
- BlackRock Income Trust is a closed-end fund that purchases agency MBS bonds and leverages them to generate high dividends and a rates-based return profile.
- The fund's 9% distribution yield is not supported by underlying cash flows, but it should make up for it through capital gains as rates move lower.
- BKT has a total return profile closely correlated to mortgage REITs like Annaly Capital and AGNC Investment Corp, making it an attractive option in the current macro environment.
- The fund takes advantage of the wide spread generated by MBS over Treasuries, a spread which exceeds 150 bps now.
Thesis
When investing, it is paramount to understand what it is that you are buying. It becomes even more important when dealing with complex products that have leverage and multiple risk factors. BlackRock Income Trust ( BKT ) is such a product. The vehicle is a closed end fund that purchases agency MBS bonds and leverages them up in order to generate a high dividend and a rates based return profile....
BKT: Understand What You Are Buying, MBS Will Likely Deliver