Should I panic…
The past few weeks have tested every income investor’s stomach. BDCs, CLO funds, and other credit names have pulled back while the S&P continues to rise. ARCC is down about 10 to 11 percent from early September, BXSL roughly 10 to 11 percent, and FSCO around 6 to 7 percent. Preferred and CEF baskets such as PFFA and CEFS have slipped a few percent.
Before assuming the engine has failed, it’s worth looking at what the numbers actually say.
What the data says
Credit conditions remain stable.
The ICE BofA U.S. High Yield OAS closed near 2.8 percent on October 3, right in the middle of its one-year range. BB spreads around 1.8 percent show no sign of stress. Defaults remain below 3 percent, far from the levels seen in real credit events.
Large BDCs continue to earn their dividends.
ARCC: Q2 core EPS 0.50, dividend 0.48, coverage around 104 percent. Non-accruals are about 1.2 percent of fair value.
BXSL: Q2 NAV 27.33, non-accruals 0.3 percent, dividend coverage about 100 percent.
FSCO: NAV 7.23 as of October 3, with price near 6.9 to 7.0. The wider discount reflects sentiment, not falling asset value.
CLO funds are still generating cash.
EIC: Estimated NAV 14.25 to 14.35 through August, fully covering its 0.14 monthly payout.
ECC: Regular 0.14 monthly distribution reaffirmed and supported by recurring cash flow.
Why prices are falling
Most of the weakness is about positioning, not problems. Investors expect one or two Fed rate cuts between late 2025 and early 2026 and have been rotating into growth and duration trades that tend to move first when policy shifts.
Equity funds saw more than 35 billion dollars of inflows in late September, while bond and income funds saw outflows. Highly liquid credit vehicles, especially ETFs and CEFs, absorb that selling pressure quickly.
We have seen this before. In mid-2023, BDCs fell about 15 percent in a month and recovered within two quarters. In 2021, a similar drop reversed in roughly six months. Moods move faster than fundamentals, and they usually come back.
The PYE view
Through the Predictable Yield Engine lens, this is what compounding feels like in real time. When prices fall and yields rise, every reinvested dollar buys more future income. A 10 percent drop in price for the same dividend lifts your forward yield by about 11 percent.
Volatility is not a flaw in the process. It is the mechanism that creates the extra return for those who stay invested and keep reinvesting.
What to do now
Stay invested and reinvest where you can.
Forward yields are higher, so every reinvested dollar buys more income and speeds up compounding.Diversify across credit types.
BDCs, CLOs, preferreds, and infrastructure income react differently to rate changes, which smooths results.Keep a small cash buffer.
Liquidity lets you buy at wider discounts and keeps you from being a forced seller.Track income, not price.
The monthly cash flow is the scorecard. Price swings are just background noise.
Guardrails
If BDC coverage broadly fell below 110 percent or high-yield defaults climbed above 5 percent, that would be a sign to reassess exposure and slow reinvestment. Right now none of that is happening. Spreads sit near 2.8 percent, coverage ratios are between 100 and 120 percent, and NAVs remain steady.
Why it matters
The Predictable Yield Engine is built on patience through volatility. When the market’s mood drifts away from fundamentals, disciplined investors collect that difference through reinvestment and compounding. The discomfort is part of the work that earns the reward.
Keep your head. Keep your yield.
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Disclaimer
The analysis and commentary shared here reflect my own research and investment approach. This content is provided for informational and educational purposes only and should not be considered financial advice, a recommendation to buy or sell any security, or an endorsement of any particular strategy. Nothing here is tailored to the investment needs or circumstances of any individual. Charts, graphs, or figures are illustrative only and should not be relied upon as the basis for investment decisions. Please consult a qualified financial advisor before making investment choices that may affect your personal financial situation.
Good point well made. This article reflects my basic investment principle, watch the fundamentals, not the price.