IEF - MGF: Transforming Treasury Returns Into A 7.8% Yield

2024-02-15 07:19:14 ET

Summary

• The MFS Government Markets Income is a closed-end fund holding Treasuries and Agency MBS bonds.
• The CEF offers a 7.8% yield, but utilizes return on capital, eroding the initial investment over time.
• The fund is sensitive to lower rates due to its long duration (6.4 years), making it an appropriate vehicle for a monetary easing cycle.
• The CEF is comparable to the all-treasuries ETF in the long run but with a significantly higher current income due to ROC.
• The fund currently trades at a slight discount, potentially offering an appealing entry point.

Thesis

The MFS Government Markets Income (MGF) fund is a fixed income closed-end management company. The vehicle falls in the rates space via its overweight Treasuries and Agency MBS allocation (those two components represent more than 90% of the fund's holdings). The fund seeks a high level of current income, and is a poster child for the CEF structure via what it actually does from a financial engineering standpoint....

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