Higher-yield bond funds run into trouble

[Joanne98]

In one of the more spectacular meltdowns in mutual fund history, Schwab YieldPlus - marketed as a higher-yielding alternative to money market funds - has plummeted to just $2.5 billion in assets from more than $13 billion in May.

The shrinkage reflects both a decline in the fund's asset value and a mass exodus by investors.

Year to date through Thursday, Schwab YieldPlus has lost 13.4 percent of its value, ranking dead last among ultra-short bond funds, according to Morningstar. The average fund in that category is down 1.5 percent this year.

A decline of that magnitude would not be unusual for a stock fund but is rare for a fixed-income fund, especially one that invests in short-term securities.
http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2008/03/25/BUNPVPMK8.DTL&tsp=1

[sharesunited]

1. 46% of the portfolio in CDO's

Collateralized debt obligations. Mortgage backed securities. These are the toxic waste of the investment community at the moment, mainly because of doubts about how they should be valued and a resulting disruption in trading.

It is akin to game of musical chairs, and this fund was chairless when the music stopped.