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CEF Specialist

No Reprieve for Energy CEFs in October

As oil prices continued to tank, commodity and energy funds took a nosedive.

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Oil prices continued their descent in October, leading some to question the future health of the country's largest oil producers. Consumers of oil and gas, however, have benefited from this steady decline in prices. Airlines, for example, have fared extremely well this year, in part because of low fuel costs. Despite the hit that oil and gas firms and energy and related mutual funds took last month, the broader equity market did quite well. The S&P 500 Index gained 2.4% in October and was up nearly 11% for the year to date.

During October, the Federal Reserve officially wound down its bond-buying program, though it's still reinvesting the cash flows received from the mortgages on its books. The Fed communicated this plan clearly and well in advance of the announcement, so the move was mostly a nonevent. Making headlines this month in the bond market, however, was the swift decline in the 10-year U.S. Treasury yield on Oct. 15. The bond's yield started the day at about 2.20% and quickly dropped to 1.87%; just as quickly, though, the bond's yield rebounded, closing the day at about 2.10%. This rapid decline coincided with increased trading volume, and some market pundits are comparing it to the "Flash Crash" of May 2010. Whatever the reason, it highlights concerns that many fund managers have about the lack of liquidity and the impact of high-frequency traders in the bond market.

Cara Esser does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.