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Explaining Yesterday's PIMCO CEF Relative Price Action

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  • Welcome to another weekday blog post from Systematic Income.
  • In this brief blog post we touch on yesterday's price action in PIMCO taxable CEFs.
  • The key takeaway is that prices moved in relation to the funds' premiums. This highlights what we refer to as the price fragility of high premium CEFs.
  • Take a 2-week no-obligation trial of Systematic Income and check out our Income Portfolios and Investor Tools.

Welcome to another weekend blog post from Systematic Income where we highlight today's price action across the taxable PIMCO CEF suite. 

PIMCO CEFs saw price drops of 4-6% yesterday with PTY and PKO underperforming. In contrast, PDO fell only marginally.

The chart below plots the price moves (x-axis) versus the starting premium levels (y-axis). 

The pattern in price moves is pretty linear – the higher the starting premium the bigger the price drop. This is the kind of dynamic that we have in mind when we talk about higher premiums being more fragile. You also see it on distribution cuts when premiums move lower in proportion to the size of the cut.

You also see it during weak days where the higher the premium the less interest other people have in buying into the fund. This greater resiliency of PDO we discussed in our recent article on the fund. We recently rotated from PHK into PDO to avoid the kind of dynamic that played out yesterday.

In short, term CEFs are more likely to be resilient during periodic blow-ups. JPT - a term preferred CEF - is another case in point – a 0.5% drop versus 2.2% average fall with the higher-premium funds like DFP, PSF and others falling around 5% on the day.

Term CEFs are part of our higher-rates playbook that we have put into action on the service.

Thanks for reading.

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Analyst's Disclosure: I am/we are long PDO.

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