Investing for Yield -- Do Not Panic

In the last two days, most of the high yield segments of the market have been falling fast. One area in particular, the floating rate funds, have declined in a fashion that one almost never sees in the segment. Others like MREITs and BDCs fell on Wednesday and have recovered somewhat today. Bond CEFs and also Municipal bond CEFs have joined the downward move. If you are invested in the floating rates or the bond CEFs DO NOT PANIC!! The key bit of information that you need to understand is that the bonds that underlie these CEFs have not declined in value. Municipal bonds have even risen a bit during this selloff of the funds. What has happened is that these stocks have moved from selling at a premium to the net asset value to selling at a discount. In some areas like the MLPs, there is some movement due to folks worrying that the tax benefits of the MLPs will be taken away in any deal on the fiscal cliff. The segment is so tiny, however, that Congress is unlikely even to focus on them in a rushed compromise reached in the upcoming lame duck session.

For those who have strong stomachs, the current downturn is a buying opportunity. For everyone else, remember that if you chose your positions wisely, the income that you will be receiving is not going down. Investments made for yields are not meant for short term trading. Things will most likely right themselves once the current upset is over.

NOTE: Remember to check out your particular positions to make sure that there are not special circumstances that apply to your specific investments. The above discussion is general in nature and does not cover each investment in the area.