Turmoil in Bond Funds Starts to Subside

The universe of bond mutual funds -- churned for months by the credit crunch, the mortgage mess, prospects of stagflation, threats to state-tax exemption of muni bonds and the auction-rate securities mess -- has shown signs of finally calming.

At least that's the indication from the latest summary of major changes in TheStreet.com Ratings bond fund grades.

The brevity of the accompanying table of major changes speaks volumes about the move toward a tranquil environment for bond funds.

Only a single open-end bond fund, the RidgeWorth Limited-Term Federal Mortgage Fund(SLTMX Quote), experienced a major upward revision in the latest computations of TheStreet.com Ratings gradings of bond funds.

SLTMX rebounded from the lowest possible mark of E-minus, which equates with a sell recommendation, to C-plus grade, which makes the fund a hold recommendation, one notch below a buy classification.

Similarly, only five bond funds suffered major downgrades.

Given the growing uncertainty about the economy, it shouldn't be a surprise that a pair of high-yield bond funds suffered major downgrades.

The Pioneer High Yield Fund(TAHYX Quote) was demoted from a C-minus to a D-minus, which pushed its recommendation from hold to sell.

The SunAmerica High Yield Fund (SHNAX Quote) tumbled from a D-plus to an E-plus, which pushed it from a weak sell to a strong sell.

The AMF Ultra Short Fund (AULTX Quote) was hammered 14.44% over the past three months that left it down 13.85% over the past year and resulted in a downgrade of D to E-minus. The fund has been loaded with mortgage paper and has recently had investments in troubled Fannie Mae obligations, failed IndyMac and Bear Stearns obligations as well as Washington Mutual notes.

Largest Recent Open-End Bond Fund Ratings Grade Changes
Name, Ticker and TheStreet.com Ratings Current Grade	Previous Ratings Grade	New Status	Previous Status	3-Month Total Return (%)	12-Month Total Return (%)
Most Improved
RidgeWorth Ltd-Trm Fed Mtg A (SLTMX) C+	E-	Hold	Sell	-0.40	3.57
MOST DETERIORATED
AMF Ultra Short Mortgage Fund (ASARX) D-	C-	Sell	Hold	-8.64	-7.95
Thompson Plumb Bond (THOPX) C	B	Hold	Buy	-4.00	1.13
Pioneer High Yield A (TAHYX) D-	C-	Sell	Hold	-3.67	-3.11
SunAmerica High Yield A (SHNAX) E+	D+	Strong Sell	Sell	-2.75	-1.67
AMF Ultra Short Fund (AULTX) E-	D	Strong Sell	Sell	-14.44	-13.85
Source: TheStreet.com Ratings - Data as of 7/31/2008. For an explanation of our ratings, click here.

Even though it is positioned in the usually safe ultra-short end of the yield curve like AULTX, the AMF Ultra Short Mortgage Fund(ASARX Quote) ASARX suffered a downgrade, from a C-minus to a D-minus, which pushed it from a hold recommendation to a sell appraisal.

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