This paper provides a new explanation for why closed-end bond funds coexist along with otherwise identical open-end bond funds. Closed-end bond funds offer investors the opportunity to leverage their fixed income investment at very low borrowing rates and are attractive to investors for this...

In this paper we explore a new explanation of why closed-end bond funds exist when similar open-end funds are available. In general, closed-end funds operate in the less-liquid parts of the market. When we compare closed-end bond funds with a matched set of open-end funds with the same...