Leverage and Closed End Bond Funds
Journal of Fixed Income. v24(4). pp. 47-59. 2015.
Posted: 21 May 2019
Date Written: May 9, 2014
The performance of a closed end bond fund is based on the returns of an underlying portfolio of bonds. This paper uses a structural model to assess the impact of leverage on the expected return and riskiness of a closed end bond fund. We use the model to explore the role of leverage during the financial crisis. Our model indicates that during the worst extremes of the financial crisis the debt of closed end bond funds had virtually no default risk and that the funding problems stemmed from a defective funding vehicle.
Keywords: Closed end bond funds, leverage
JEL Classification: G01, G12, G20
Suggested Citation: Suggested Citation