Is the 8.88% Yield of First Trust Intermediate Duration Preferred & Income Fund a Golden Opportunity or a High-Stakes Gamble in a Rising Rate World?

In the world of income investing, few numbers catch the eye like 8.88%. That's the yield currently offered by the First Trust Intermediate Duration Preferred & Income Fund (FPF), a closed-end fund that's been a favorite of income hunters for years. But here's the rub: we're in a rising interest rate environment, and FPF's strategy—built on leverage, preferred securities, and a duration that could stretch to 8 years—makes this fund a double-edged sword. Let's dig into the numbers, the risks, and whether this yield is worth the ride.

The Allure of FPF's Yield

FPF's 8.88% yield (based on its July 2025 market price of $18.58) is nothing short of tantalizing. For context, the 10-year Treasury yield recently hit 4.3%, and high-yield corporate bonds trade at a 5.5% yield. FPF's premium here is powered by its focus on preferred securities and hybrid instruments, which often pay higher coupons to compensate for their unique risks. The fund's portfolio is a mosaic of fixed-rate preferreds, floating-rate hybrids, and debt securities, with a weighted average coupon of 4.91% and a yield-to-worst of 5.27%. That's solid, but it's the leverage that turns this into a high-octane play.

FPF borrows money—essentially taking on debt—to amplify its returns. While the exact leverage ratio isn't disclosed, the fund's duration (a measure of interest rate sensitivity) jumps from 6.14 years (without leverage) to an undefined higher level when leverage is factored in. That means if rates rise sharply, FPF's net asset value (NAV) could crater faster than a typical bond fund.

The Risks: Leverage, Duration, and Call Risk

Let's call it like it is: leverage is a gamble. When you borrow at one rate and invest at another, you're betting that the spread will widen enough to justify the risk. FPF's leverage strategy has historically helped boost its yield, but in a rising rate world, it's a magnifier for losses. For every 1% rise in rates, a fund with 8-year duration could see its NAV drop by roughly 8%. Add leverage, and that loss could double.

Another hidden danger is call risk. Many of FPF's preferred securities are callable, meaning issuers can redeem them early if rates fall. But in a rising rate environment, this risk is less acute—until rates stabilize. If rates peak and companies start calling high-yielding securities, FPF could face reinvestment risk at lower yields, denting its future returns.

Historical Lessons: FPF in a Rising Rate World

FPF's performance during past rate hikes isn't explicitly detailed in the data, but we can extrapolate. The fund's 3-year annualized return since inception is 7.09%, outperforming the Bloomberg US Aggregate Bond Index. However, in 2023 alone, its shares dropped 11.4% as rates surged. That's a stark reminder: high yield doesn't shield you from price volatility.

The fund's current yield of 8.88% is partly supported by its distribution policy, which has historically sourced payouts from net investment income. But as the 2023 example shows, distributions aren't guaranteed and could be trimmed if the fund's income declines during a rate shock.

The Verdict: A Speculative Bet for the Bold

FPF's 8.88% yield is a siren song for income-starved investors, but it's not for the faint of heart. Here's how to think about it:
- If you're a high-risk, high-reward investor: FPF could be a speculative play to boost your portfolio's income, especially if you're already hedging rate risk elsewhere.
- If you're risk-averse: Look to shorter-duration bond funds or ETFs with lower leverage. The 8.88% yield is tempting, but it comes with a volatility price tag.

Final Take

FPF is a high-stakes game in a rising rate world. The 8.88% yield is achievable, but it's built on leverage, duration, and the fragile stability of preferred securities. For those willing to stomach the volatility, it could be a golden opportunity. For others, it's a cautionary tale: high yield doesn't mean high safety.

Before you jump in, ask yourself: Can you handle a 10%+ drop in the fund's price if rates spike? If the answer is “no,” pivot to safer alternatives. If it's “absolutely,” then FPF might just be your kind of adrenaline.