BlackRock's Leveraged Mortgage-Backed Securities Venture Yielding 9%, now receiving an Upgraded Rating
In the world of fixed income mutual funds, BlackRock Income Trust (BKT) stands out as a leveraged closed-end fund specializing in mortgage-backed securities (MBS) and other U.S. fixed income assets[1][2]. Managed by BlackRock Advisors, LLC, BKT offers a relatively high distribution yield of around 9%, making it an attractive option in a yield-scarce environment[1][4].
The fund's primary focus is on leveraging up credit risk-free assets, such as Agency MBS bonds, to produce superior returns when interest rates move lower[2]. As of July 2025, BKT has a duration of 6.7 years, a holding weighted average life (WAL) of 9.2 years, a yield to maturity (YTM) of 5.3%, and a CEF distribution rate of 9%[1].
BKT's structure is designed to leverage up a credit risk-free asset, Agency MBS bonds, to generate superior returns when interest rates move lower. The fund contains mostly Agency MBS bonds (118%), US Government bonds (8%), and securitized products (6%)[1]. Its 20% gearing makes it most sensitive to intermediate rates, given its 6.7-year duration[1].
However, it's important to note that BKT runs rate risk, as it has no credit risk. When rates move up, BKT loses value. Conversely, when rates move lower, BKT gains in value[1]. The market trades probabilities indicate a 100 bps decrease in Fed Funds within the next year[3]. If this happens, BKT is expected to generate a total return of approximately +14%[1], with a true cash yield of roughly 6.5%[1].
Despite the high distribution rate, it's not supported by the portfolio yield to maturity (5.3%)[1]. Furthermore, BKT's resilience to rate shocks and slow accretion when rates move lower has been evident in its year-to-date performance, compared to similar funds like Dynex Capital, Annaly Capital, and AGNC Corp[1].
BKT is highly correlated with 10-year yields and is less volatile than mReit peers running more leverage[1]. The fund's reporting includes leverage, which is approximately 20%[1]. Last year, the BlackRock Enhanced Government Fund merged into BKT[1].
The fund's market presence is significant, with a market capitalization around $285 million and a share price near $11.72 as of August 2025[4][5]. However, it's worth noting that while it has moderate liquidity (average daily trading volume of around 70,000 shares), technical indicators show mixed signals with some near-term sell signals, suggesting potential price corrections[3][5].
In terms of risks, the fund uses leverage (1.16x), which amplifies both gains and losses, increasing volatility, especially in a rising interest rate environment or if mortgage-backed securities underperform[1]. BKT is also sensitive to interest rate fluctuations, prepayment risks, and changes in credit spreads. Rising rates can negatively impact the net asset value (NAV).
While primarily high-grade securities, the inclusion of non-agency MBS and asset-backed securities adds credit risk relative to pure government bonds[2][4]. Short interest is currently low (~0.28% of float) and decreasing, indicating limited market bearish bets against the fund, but this can change with market conditions[5].
In conclusion, while BKT offers a high distribution yield and benefits from BlackRock's management expertise and a diversified portfolio, it carries risks related to leverage, interest rates, and credit exposure in the current volatile fixed income market[1][2][4]. Investors should carefully consider these risks before investing in BKT.
[1] BlackRock (2025). BlackRock Income Trust (BKT) Overview. Retrieved from https://www.blackrock.com/corporate/investor-relations/fund/blackrock-income-trust-bkt [2] BlackRock (2025). BlackRock Income Trust (BKT) Factsheet. Retrieved from https://www.blackrock.com/corporate/literature/publications/literature/investor-relations/literature/fact-sheet/blackrock-income-trust-bkt-factsheet.pdf [3] Yahoo Finance (2025). BlackRock Income Trust (BKT). Retrieved from https://finance.yahoo.com/quote/BKT/ [4] MarketWatch (2025). BlackRock Income Trust (BKT) Stock Quote. Retrieved from https://www.marketwatch.com/investing/stock/bkt/profile [5] Finviz (2025). BlackRock Income Trust (BKT). Retrieved from https://finviz.com/quote.ashx?t=BKT&ty=cashflow&p=dch1
- In the world of fixed income investments, the BlackRock Income Trust (BKT) stands out as a government-focused investment opportunity, particularly in the realms of business finance and politics, with a focus on mortgage-backed securities and U.S. fixed income assets.
- This leveraged closed-end fund, managed by BlackRock Advisors, LLC, is not only attractive due to its relatively high distribution yield of around 9%, but also due to its correlation with 10-year yields and its resilience in a yield-scarce environment.
- Investors should be aware of the risks associated with BKT, such as the fund's sensitivity to interest rate fluctuations, prepayment risks, changes in credit spreads, and its use of leverage, which amplifies both gains and losses, increasing volatility, especially in a rising interest rate environment.
