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Lower-rated and illiquid nonagency MBS in IOFIX can bite again, and again. The fund firm also had to settle with the SEC on mispricing of odd-lot bonds and market manipulation related to thinly traded small bond issues. When a bond fund is forced to sell massively (see the chart below), it tries to sell its most liquid and better quality bonds first, and then what remain is a portfolio of declining quality with increasing risks. The leverage also goes up. While IOFIX may recover again, it isn't a fund for the faint-hearted.
