Looking at the yield spectrum - Best of both pays 6.85% + Capital Gain resulting from global yield hunt (i.e. lower long term volatility)
When looking for the best of both worlds, stock risk and yield, we usually turn to the convertible bond. Decomposing it we have three parts
i = bonds
r = credit spreads
v = vol
This decompostion tells us that today’s zero coupon bond is very rich, thus leaving very little money to buy vol (a call option) which in turn is very rich itself. Not a very interesting sum of the parts to get the best of both worlds. However, we do have the option then to look at different bonds and slide higher up the risk scale spectrum to find a cheaper, however riskier bond that can also provide a chance for capital gain. Below is graph of assets vs yield (avg etf in sector)
If we separate the above graph in half down the middle - 1. Government Safety and 2 . Corporates, we clearly see that muni bonds and HY bonds are providing the best yield returns in the respective yields spectrum's. REITs are the worst risk adjusted.
A combination of the two best, gives us today a yield of 6.85% and the possibility to capture credit spread/vol compression (via a capital gain in HY bonds). This is far better then buying muni + call, instead, we are collecting the daily theta by taking the risk on HY bonds in hopes of a credit/vol compression - i.e lower long term volatility