High Yield Carnage And Closed End Funds

Published Mon, 14 Dec 2015 11:01:31 -0500 on Seeking Alpha

Summary
High yield bonds are suffering a liquidity crisis that is causing NAVs to fall.
Due to their nature, CEFs are less susceptible to a liquidity crisis than bond mutual funds, but they are impacted by the high redemptions elsewhere in the bond market.
When the time is right, there will be wonderful buying opportunities in the high yield CEF universe, but that time is not quite yet.
With Carl Icahn warning about a "keg of dynamite" in the high yield market and Third Avenue liquidating a high yield bond fund, the so-called "junk bond" market is living up to its name. While markets are victim to volatility every once in a while, the problems in high yield are worrisome for a couple of reasons. Firstly, the high yield market never really recovered from the taper tantrum of 2013, meaning the bad run for high yield has now lasted almost three years:

Secondly, with a ZIRP environment where retirees are desperate for income, many have been fooled into buying into the high yield market at the wrong time.
Many fears around high yield bonds focus on the impact of a rising interest rate environment, but a much greater threat is behind Icahn's red flag: liquidity.
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