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Nuveen Credit Strategies Income Fund (JQC) offers a high monthly distribution rate to investors through a hybrid portfolio of senior loans, corporate bonds, and collateralized loan obligations. However, coverage remains a concern as the fund's net investment income has consistently fallen short of its monthly distribution payments, raising questions about its ability to sustain its payout.

Nuveen Credit Strategies Income Fund (NYSE: JQC) has garnered attention for its high monthly distribution rate, offering investors a compelling income stream. The fund invests in a hybrid portfolio of senior loans, corporate bonds, and collateralized loan obligations (CLOs), providing a diversified fixed-income strategy. However, concerns over distribution coverage have persisted, raising questions about the fund's ability to sustain its payout.

The fund's monthly distribution rate stands at 12.3%, making it an attractive option for income-focused investors. However, the fund's net investment income (NII) has consistently fallen short of its monthly distribution payments. As of the latest data, JQC's NII coverage was approximately 73%, down from around 76% previously. This trend of lower coverage has continued, with the fund's fiscal 2025 coverage dipping to around 83.3%, compared to 87.5% in fiscal 2024 JQC: High Yield With Monthly Pay, But Coverage Remains A Concern^[1].

The primary concern is the fund's significant exposure to floating-rate assets, which are expected to generate lower income as the Federal Reserve (Fed) cuts its benchmark rate. The Fed's recent 25 basis point cut and projected further reductions are likely to exacerbate this issue, further weakening distribution coverage JQC: High Yield With Monthly Pay, But Coverage Remains A Concern^[1].

Moreover, JQC's leverage, currently at 37.14%, is also based on floating rates, which could ease borrowing costs. However, the fund's average annual interest rate has decreased from 5.76% to 5.61%, indicating a slight improvement in borrowing costs JQC: High Yield With Monthly Pay, But Coverage Remains A Concern^[1].

The fund's portfolio has not undergone significant shifts since the last update, remaining heavily skewed toward senior loans and CLOs. This strategy, while providing limited interest rate sensitivity, exposes the fund to credit risks, particularly given the current economic slowdown and labor market cracks JQC: High Yield With Monthly Pay, But Coverage Remains A Concern^[1].

In conclusion, while Nuveen Credit Strategies Income Fund offers a high monthly distribution rate, investors should be cautious due to the persistent concerns over distribution coverage. The fund's exposure to floating-rate assets and the Fed's rate cuts are likely to continue weakening coverage. Therefore, investors should approach this fund with a critical eye, considering the risks and potential rewards before making any investment decisions.