The income markets have entered the month in a strange but still investable condition. Public credit markets are acting as though the world is just fine. Private credit is acting as though someone finally turned on the lights in a crowded room. Energy income has been helped by higher oil and LNG disruption. Mortgage credit is stable on the residential side but still selective and troubled in commercial real estate. Preferreds, bank debt, and closed-end fund discounts remain fertile hunting grounds for income investors willing to do actual credit work instead of chasing the highest quoted yield on the screen.

High yield spreads remain extraordinarily tight. The ICE BofA U.S. High Yield OAS was 2.79% on May 11, while CCC and lower spreads were around 9.15% and AA spreads were near 0.51%. That tells us the public bond market is not pricing recession, systemic credit stress, or a broad default wave. It is pricing liquidity, cash demand, and confidence. Reuters reports that U.S. credit markets continue to rally despite war risk and oil above $100, with investment-grade issuance already exceeding $1 trillion in the first 4 months of the year. That is not panic. That is a yield-starved market still reaching for paper.

Private credit is where the real debate lives. Reuters reviewed major BDC filings and found that first-quarter marks declined across several large private credit portfolios, with the aggregate fair value-to-cost ratio falling to 98.55%. That is not a disaster, but it is a sign that the endless "private credit never loses money" fairy tale has suffered a well-deserved head injury. Moody's has cut its outlook on U.S. BDCs to negative, citing redemption pressure, rising leverage, funding pressure, and possible software loan stress from AI disruption. Fitch has also reported elevated private credit default rates, including 5.8% in January and 5.4% in February.

That does not mean we run from BDCs. It means we separate strong lenders from yield tourists. Publicly traded BDCs have already absorbed a great deal of bad sentiment. JPMorgan noted that publicly traded BDCs were down roughly 16% over the prior year, with wide dispersion between stronger and weaker names. That is exactly the type of setup that can create rebound potential. The better BDCs still have diversified portfolios, secured loan exposure, sponsor relationships, dividend coverage, and access to funding. The weaker ones have concentrated software books, strained marks, redemption pressure, and the smell of 2021 underwriting on their clothes.

Actual credit conditions are mixed, not broken. Public high yield spreads are tight. Listed-company default probability has eased from last year, with Moody's showing average one-year expected default probability for U.S. listed companies falling to 7.9% in March from 9.1% a year earlier, while high-yield company expected default probability was 3.2%. That is still not pristine, but it is improvement. In private credit, the pressure is more idiosyncratic and sector-specific. The risk is not "all private credit is bad." The risk is bad vintage, bad sponsor, bad sector, bad documentation, bad marks, and bad leverage.

Oil and gas income investments remain one of the stronger parts of the portfolio universe. The EIA expects Brent to remain around $106 per barrel in May and June after the Strait of Hormuz disruption drove April prices sharply higher. Royalty trusts and mineral owners benefit directly from realized commodity prices without having to fund drilling budgets. Midstream assets remain more volume and fee driven, but they are helped by LNG exports, power demand, and the continuing need to move natural gas from production basins to end users. Eagle Global expects midstream distributable cash flow growth in the mid to high single digits in 2026, supported by stable production, LNG exports, and global demand for U.S. barrels.

Residential mortgage-backed securities remain one of the cleaner credit stories in the income market. Housing affordability is poor, transaction volume is weak, and mortgage rates remain a nuisance, but the actual credit performance of seasoned residential mortgages is still strong. Morgan Stanley expects home prices to remain broadly stable in 2026 after modest appreciation in 2025, with limited supply and demographic demand supporting collateral values. That is the key point. RMBS credit does not need a housing boom. It needs borrowers with equity, stable jobs, and collateral values that do not collapse. So far, that box remains checked.

Commercial mortgage-backed securities are more complicated. MBA reported that commercial mortgage delinquencies rose to 4.02% in the first quarter from 3.86% in the prior quarter. Office remains the problem child, but the market is no longer pretending every CRE asset is doomed. Industrial, multifamily, retail, and select hospitality assets have better financing access than older office buildings with weak leasing and large maturity walls. CRE debt is funded but selective. That is a good phrase for the entire CMBS market. There is capital, but it is no longer stupid capital.

High-grade high-yield bonds remain expensive. At a 2.79% high-yield OAS, investors are not being paid much for broad credit beta. The better approach is to hold higher-quality yield where the spread compensates for known risks, not to buy the whole junk bond market just because the coupon looks better than Treasuries. BB and strong single-B credits may still make sense selectively, but the broad high-yield market is giving us income, not margin of safety.

Discounted closed-end fund activism and arbitrage remain alive, although the easy money is not as abundant as it was when discounts were wider. John Cole Scott noted that average CEF discounts were about 5.8%, with only 75 funds wider than 10%, representing roughly $46 billion of assets. Activism continues to work where discounts are wide, shareholder bases are tired, and boards are vulnerable. The Herald Investment Trust settlement with Saba, including a tender offer for up to 66% of shares near NAV, shows that activists can still force real outcomes.

Community bank debt securities remain attractive, but credit selection matters. The FDIC's 2026 Risk Review shows that community bank loans rose 5.4% in 2025, with nonfarm nonresidential CRE up 6.9%. The banking system is not in crisis, but unrealized securities losses, CRE exposure, funding costs, and deposit mix still matter. Angel Oak notes that 2025 was the third-strongest year on record for regional and community bank debt issuance, with nearly $8 billion issued, and expects strong volumes again in 2026. For us, this remains a buy-the-underwriting market, not a buy-the-sector market.

Bank risk-transfer securities in the U.S. and Europe continue to grow as banks look for capital relief without shrinking loan books. BNY notes that regulatory guidance in Europe and the U.S. is accelerating credit risk transfer markets, with direct credit-linked note structures becoming more common in the U.S. T

he BIS says synthetic risk transfers have grown significantly but remain small relative to bank balance sheets, with European banks still dominant and North American issuance increasing. first-loss or mezzanine exposure to bank loan pools, not a gift from a generous banker.

High-quality Asia-Pacific sovereign bonds remain useful diversifiers, but inflation dispersion has returned. LSEG notes that inflation rebounds in Indonesia, the Philippines, and India have been driven by higher food and energy prices. PIMCO describes the region as one of diverging policy paths, with fiscal easing in China, Japan, and the U.S. helping stabilize growth while inflation remains broadly contained.

 The best opportunities are likely to be selective rather than regional. Strong sovereign balance sheets, credible central banks, and real yield support matter more than chasing the highest local-currency coupon.

Preferred stocks trading below par remain appealing for patient income investors. The preferred market has been pressured by higher long-term rates, but the credit backdrop for large financial issuers remains solid. Morgan Stanley expects preferreds to benefit from healthy earnings, mid-cycle fundamentals, expected Fed cuts, reasonable valuations, and limited bank supply. Parametric notes that $25 par retail preferreds underperformed larger institutional preferreds because of longer duration and greater equity-market sensitivity.

That underperformance is exactly why select below-par preferreds deserve attention. We are being paid to wait, and in some cases we have pull-to-par upside if rates cooperate.

The bottom line for Easy Income is straightforward. The market is still paying us, but it is not paying us equally well everywhere. Broad public credit is expensive. Private credit is under scrutiny, but the best BDCs may be setting up for a rebound as panic separates from reality. Energy income remains supported by oil, LNG, and power demand. RMBS credit is still solid. CMBS requires property-level selectivity. Closed-end fund discounts remain a source of event-driven income. Bank debt and risk-transfer securities remain attractive for investors who understand the capital stack. Preferreds below par continue to offer income plus recovery potential.

This is not the month to reach blindly. It is the month to collect cash, upgrade quality, and let volatility expose the sellers who mistook yield for safety.

Easy Income Portfolio Review

The Easy Income portfolio continues to reflect the core philosophy of this newsletter. We are building a diversified portfolio of income-producing assets designed to generate substantial cash flow while also providing the opportunity for capital appreciation when discounts narrow, spreads tighten, or sentiment improves. The portfolio spans preferred securities, private credit, energy infrastructure, mortgage-backed securities, leveraged loans, bank debt, sovereign bonds, and discounted closed-end funds.

Many investors spent the past several years hiding in money markets and short-term Treasuries. That trade made sense while rates were rising rapidly. The environment is beginning to change. Credit markets have stabilized, inflation pressures have become more sector-specific, and many income-oriented securities still trade at discounts created during the rate shock of the past several years. The result is an unusually attractive opportunity set for disciplined income investors.

Virtus InfraCap U.S. Preferred Stock ETF (PFFA) – Yield 9.42%

PFFA invests primarily in preferred securities issued by banks, insurance companies, utilities, and other financial firms. Preferred stocks remain one of the more overlooked areas of the income market after the rapid rise in Treasury yields pressured valuations across the sector. Many preferreds still trade below par value despite improving fundamentals at large financial institutions.

The fund uses active management and modest leverage to enhance returns and identify mispriced securities. If long-term rates stabilize or decline, preferred securities could benefit from both attractive current income and meaningful capital appreciation as discounts to par narrow.

Special Opportunities Fund (SPE) – Yield 14.10%

SPE is an opportunistic closed-end fund focused on value investments, restructurings, arbitrage situations, and discounted securities. Management actively seeks situations where market pricing has diverged materially from intrinsic value. The fund often invests in special situations that traditional income funds ignore.

The elevated yield reflects both portfolio income and the discounted nature of many underlying holdings. This remains an attractive vehicle for investors seeking exposure to event-driven opportunities alongside substantial current cash flow.

Simplify MBS ETF (MTBA) – Yield 5.03%

MTBA provides exposure to residential mortgage-backed securities combined with active interest-rate management strategies. The fund focuses primarily on agency and high-quality mortgage assets while using hedging overlays to manage duration and volatility risk.

Residential mortgage credit conditions remain relatively healthy. Homeowners continue to possess substantial equity cushions, delinquency trends remain manageable, and housing supply constraints continue to support collateral values. MTBA serves as one of the more defensive fixed-income holdings in the portfolio while still providing attractive income relative to traditional bond funds.

iShares Mortgage Real Estate ETF (REM) – Yield 8.93%

REM provides diversified exposure to mortgage REITs involved in residential mortgages, commercial mortgages, servicing rights, and structured credit investments. Mortgage REITs suffered heavily during the rate shock and funding volatility of the past several years, leaving many firms trading at substantial discounts to book value.

Conditions in the sector have begun to stabilize as funding markets normalize and interest-rate volatility moderates. If mortgage spreads continue to improve and financing conditions remain orderly, the sector could experience meaningful recovery potential alongside very attractive yields.

Saba Closed-End Funds ETF (CEFS) – Yield 6.11%

CEFS invests in discounted closed-end funds while also pursuing activist opportunities designed to unlock shareholder value. The strategy benefits from persistent inefficiencies in the closed-end fund market, where discounts to net asset value can remain irrationally wide for extended periods.

Activist campaigns, tender offers, restructurings, and liquidation efforts continue to create opportunities throughout the sector. CEFS provides diversified exposure across multiple income-oriented closed-end fund categories while allowing investors to benefit from discount narrowing and arbitrage opportunities.

SPDR Blackstone Senior Loan ETF (SRLN) – Yield 7.52%

SRLN invests primarily in floating-rate senior secured loans. These loans occupy the top position in the corporate capital structure and generally benefit from elevated short-term interest rates.

Floating-rate credit continues to offer attractive income while maintaining lower duration risk than traditional fixed-rate bonds. Credit conditions remain stable enough to support the sector, although careful underwriting remains essential as default rates gradually normalize from unusually low levels.

Tortoise Energy Infrastructure Corporation (TYG) – Yield 10.88%

TYG invests in energy infrastructure assets including pipelines, gathering systems, storage facilities, and other midstream operators. The energy infrastructure sector continues to benefit from strong free cash flow generation, LNG export growth, and increasing electricity demand tied to industrial reshoring and data center expansion.

Midstream companies are often misunderstood as direct commodity bets when much of the cash flow is fee-based and volume-driven. The sector remains attractively valued relative to its cash-generating ability and continues to provide substantial distributions.

Angel Oak Financial Strategies Income Term Trust (FINS) – Yield 9.73%

FINS specializes in debt issued by banks, insurance companies, and other financial institutions. Community bank subordinated debt remains one of the more overlooked areas of the credit markets despite improving stability across much of the banking sector.

The term structure of the fund also creates a potential catalyst for narrowing discounts over time. Investors are effectively being paid substantial income while waiting for market pricing to better reflect underlying asset values.

Aberdeen Asia-Pacific Income Fund (FAX) – Yield 13.31%

FAX invests primarily in sovereign and corporate debt across the Asia-Pacific region. The fund offers exposure to economies that generally maintain healthier fiscal conditions than many Western nations while also providing diversification away from the U.S. dollar.

Asia-Pacific bonds continue to offer attractive real yields in several markets, particularly where inflation remains relatively contained. The elevated distribution reflects leverage, portfolio structure, and discounts within the closed-end fund market.

Dorchester Minerals LP (DMLP) – Yield 9.48%

DMLP is one of the purest royalty income investments available in the public markets. The partnership owns mineral and royalty interests across major oil and gas producing regions without bearing the operational costs associated with drilling activity.

As a royalty owner, DMLP benefits directly from production and commodity pricing while avoiding many of the capital spending risks faced by exploration companies. Elevated energy prices and stable U.S. production continue to support strong cash distributions.

StoneCastle Financial Corp. (BANX) – Yield 9.84%

BANX invests primarily in community bank debt securities, preferred shares, and related financial instruments. The company focuses on smaller financial institutions that are often overlooked by larger institutional investors.

Community bank balance sheets continue to stabilize following the regional banking stress of the past several years. While commercial real estate remains an area requiring careful analysis, many smaller banks continue to maintain strong local franchises and attractive capital positions. BANX provides exposure to attractive yields generated by subordinated bank debt and preferred securities.

Nuveen Real Asset Income and Growth Fund (JRI) – Yield 12.29%

JRI combines investments in REITs, infrastructure assets, utilities, and preferred securities. Real assets continue to provide inflation-sensitive cash flows and diversification from traditional equities and bonds.

REIT valuations remain attractive in many sectors after years of rate-driven pressure. Infrastructure and utility holdings provide stable contractual revenue streams, while preferred securities contribute additional yield enhancement. The fund remains a diversified real asset income vehicle with substantial cash flow generation.

VanEck BDC Income ETF (BIZD) – Yield 13.72%

BIZD provides diversified exposure to publicly traded business development companies and the broader private credit industry. The sector has faced heavy pressure over concerns about underwriting quality, rising defaults, and valuation marks across private lending portfolios.

The concerns are real, but they are also becoming more selective rather than systemic. Public credit spreads remain tight, defaults remain manageable overall, and many of the stronger BDCs continue to generate solid net investment income with dividend coverage intact. If private credit fears continue to ease and recession concerns fade, the BDC sector could experience a meaningful rebound. The current yield compensates investors generously while waiting for sentiment to improve.

WisdomTree Private Credit and Alternative Income Fund (HYIN) – Yield 13.40%

HYIN provides exposure to private credit and alternative income securities through a diversified portfolio that includes business development companies, CLO debt and equity, structured credit, specialty finance, and other alternative income-producing assets.

The fund is particularly interesting in the current environment because it provides broad exposure to private credit markets at a time when investor sentiment toward the sector remains cautious. Publicly traded private credit securities have already repriced lower as concerns about defaults and portfolio marks intensified. However, actual credit conditions remain mixed rather than catastrophic. Many senior secured loans continue to perform well, and underlying cash flows remain stable across much of the industry.

HYIN offers investors the opportunity to collect substantial income while positioning for potential recovery in private credit and alternative lending markets as conditions stabilize.

Infrastructure Capital Bond Income ETF (BNDS) – Yield 7.91%

BNDS is an actively managed bond ETF focused on generating high current income through investments across corporate bonds, securitized credit, preferred securities, structured products, and other income-producing debt instruments.

Unlike traditional aggregate bond funds that simply track broad indexes, BNDS takes a more tactical and opportunistic approach to credit allocation. The fund can shift exposure across sectors depending on valuations, spreads, and risk conditions.

The current environment remains favorable for flexible income strategies. Bond yields across many sectors remain historically attractive following the repricing of fixed-income markets over the past several years. BNDS provides diversified exposure to those opportunities while maintaining substantial current income and active risk management.

The Easy Income portfolio remains broadly diversified across multiple income sectors that continue to offer attractive yields relative to both stocks and traditional bonds. More importantly, many holdings still trade at discounts created during the rate shock and credit fears of the past several years. That combination of elevated income and discounted valuations remains one of the more attractive setups available for long-term income investors today.