AGG - PAI: Bonds And The Fed May Still Be Too Optimistic

2024-03-22 04:20:12 ET

Summary

• The Western Asset Investment Grade Income Fund has a lower yield than most fixed-income closed-end funds and money market funds.
• The fund has outperformed the Bloomberg U.S. Aggregate Bond Index over the past six months, but it was beaten by some other investment-grade CEFs.
• The fund's strategy primarily focuses on investing in long-dated investment-grade bonds, which exposes it to interest rate risk.
• There is a very real possibility that interest rates will remain higher than the Fed expects this year, which could cause problems for this fund going forward.
• The fund is probably fine to hold at this point, but the risks are very real for potential buyers.

The Western Asset Investment Grade Income Fund ( PAI ) is a closed-end fund that can be employed by those investors who are seeking to earn a high level of income from the assets in their portfolios. Unfortunately, it is not particularly good at this as its 4.92% current yield is worse than that of just about every fixed-income closed-end fund in the market today. In fact, the fund's current yield is actually lower than that of a good money market fund or short-term U.S. Treasuries. It is, therefore, somewhat unlikely to appeal to most income-focused investors as there are safer options available for those who are seeking to earn a high yield. Here is how this fund compares to other investment-grade bond funds in terms of yield:

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