Fixed Rates, Flexible Strategy: How The Infrastructure Capital Bond Income ETF (BNDS) Navigates Today's Complex Waters

Globe and Mail

5 hours ago

DETROIT, MICHIGAN - June 18, 2025 (NEWMEDIAWIRE) - Last year, investor sentiment for benchmark interest rate cuts rose, thanks in large part to actions taken by the Federal Reserve. In September, the central bank cut borrowing costs for the first time in more than four years, opting to lower the rates by 50 basis points to a range of 4.75% to 5%. Naturally, the Fed's decision carried an implied trickle-down effect on matters that are critical to consumers, such as mortgages and auto loans.
At the same time, a lower rate environment generally spells positive tidings for income-generating funds like the Infrastructure Capital Bond Income ETF (ARCA: BNDS). An exchange-traded fund managed by Infrastructure Capital Advisors – commonly known as InfraCap – the main priority of BNDS is to maximize current income for its stakeholders. Secondarily, the fund seeks to pursue capital appreciation.
However, with the trade policies of President Donald Trump and the residual impact of the COVID-19 crisis – most notably the sharply elevated costs of living – the Fed does not appear to be in the mood to reduce the benchmark interest rate. Indeed, the president has vocally expressed frustration with Fed Chair Jerome Powell's wait-and-see approach amid unresolved trade and budget issues.
If that wasn't enough, Goldman Sachs analysts warned that higher inflation numbers could sideline the prospect of dovish monetary policy until December. If so, government bonds would theoretically compete with investment vehicles like the BNDS ETF. After all, U.S. Treasuries are backed by the full faith and credit of the U.S. government.
That's a fancy way of saying risk-free yield. In that case, is there any reason to consider BNDS? A closer look at the underlying architecture reveals an intriguingly relevant picture.
Practical Leadership: A Core Attribute Undergirding The BNDS ETF
While the BNDS ETF and other income-oriented funds face challenges in the current economic and political environment, it's also worth noting that the Infrastructure Capital fund distinguishes itself from many other competitors with its active management. Unlike passive funds, which merely attempt to replicate the performance of benchmark indices, actively managed vehicles directly navigate the pitfalls that may arise in the market. Some of the potential advantages include the following as part of the strategy sought by the fund:
Avoidance of weak credits or downgrade risks.
Rotation into undervalued, higher-yielding bonds when conditions shift.
Dynamic adjustment of sector and duration exposure.
Deployment of options-based overlays to enhance income potential.
More importantly, the BNDS ETF is overseen by Infrastructure Capital Founder, CEO and Portfolio Manager Jay D. Hatfield. Leveraging almost three decades of experience in the securities and investment industries, Hatfield commands broad expertise across a range of disciplines. By having intricate knowledge of the ebb and flow of the capital markets, Hatfield helps navigate the BNDS around pitfalls and toward probabilistically viable pathways.
It's not just a marketing slogan or pitch. Rather, Hatfield's extensive body of work speaks for itself. In addition to the BNDS ETF, he also manages the Virtus InfraCap US Preferred Stock ETF (ARCA: PFFA), which seeks income, primarily through U.S. preferred securities.
But arguably the biggest advantage that Hatfield offers is his acumen as it relates to writing options. Also known as selling options, this process is known as 'writing' because the trader is underwriting the risk that the underlying security will not move in accordance with the debit buyer's wish. By logical deduction, all written options are credit-based strategies because the seller of the options contract receives a premium for the risk acceptance.
Subsequently, this premium is known as income, which is expressed in the form of the option's yield. Mathematically, the yield is the premium received divided by the capital at risk or capital required, usually expressed as a percentage over the contract's lifespan. Using options-writing strategies, traders can dramatically boost their income-generating portfolio.
So, why don't more traders consider selling options? Primarily, it's because credit-based options suffer from the ever-present threat of tail risk.
Initially, credit-based options are enticing because they start from a cash influx position. However, if the trade moves against the credit seller, the underlying yield imposes negative convexity. In simple terms, the credit seller ends up owing money at a non-linear rate the more the trade moves against the credit position. The maximum that can be lost is essentially the inverse of the yield, which can be severe depending on the yield size.
Oftentimes, one fully toxic credit spread is enough to derail profits in other transactions. This is why the leadership and exercise of Jay Hatfield is critical to the integrity of the BNDS ETF.
Narrowing Credit Spreads: An Underappreciated Market Dynamic
Another reason to consider the BNDS ETF despite the high interest rate environment is the potential for the credit spread to narrow. A credit spread is the difference between Treasury yields and corporate bond yields. At the moment, spreads have been widening due to investors pricing in default risk (of corporations) and lingering economic uncertainty.
However, the Fed has indicated that it would hold interest rates steady, which subtly indicates confidence in the economy; otherwise, the central bank would be tempted to consider interventionary policies. Moreover, Goldman Sachs analysts – while acknowledging the threat posed by persistent inflation – recently lowered recession odds to around 30%.
In response to improving conditions, corporate bond yields may come down due to the reduced risk profile, a circumstance called spread compression. Simultaneously, corporate bond prices may rise due to yields and prices moving inversely.
Down the line, the BNDS ETF – which holds a portfolio of corporate bonds – may see capital appreciation, a dynamic which would not impact Treasuries (since there are no spreads in that case to compress).
In other words, investors who choose to put their money into Treasuries are dependent on Fed policy. On the flipside, the actively managed BNDS could rise based on a variety of well-researched strategies and methodologies, including spread compression and options writing.
A Dynamic Fund For A Constantly Shifting Market
With the introduction of new economic policies clashing with lingering challenges, the market environment of 2025 has caught many investors by surprise. Due to the broad uncertainties, a temptation exists to park funds in U.S. Treasuries. However, Infrastructure Capital's income-focused BNDS ETF may offer an intriguing alternative.
As an actively managed fund, the BNDS seeks out undervalued and underappreciated opportunities to help stakeholders generate income. As well, through the expertise of Portfolio Manager Jay Hatfield, the ETF aims to deliver enhanced yield through options-writing strategies. Finally, BNDS could potentially see capital appreciation due to the credit-spread narrowing if economic conditions improve. Click here to learn more about the fund.
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