PMF - Municipal Bond CEFs: Surprise Surprise PIMCO Finally Cuts Muni Bond CEF Distributions

Summary

• It was only a matter of time. PIMCO's 3 national municipal bond CEFs were having some of the worst NAV performances of all muni bond CEFs over the past year.
• And yet, PIMCO had been maintaining their ultra-high distributions as if there was no problem.
• The PIMCO national muni bond CEFs, PMX, PMF and PML, are very aggressive with their amount of leverage, which is great in good times but can seriously deplete NAV in bad times.
• And we were definitely in bad times. While all other muni bond fund families like Nuveen, BlackRock, etc. have been cutting distributions as short-term rates skyrocketed while muni bond prices cratered, all of the PIMCO funds were status quo.
• Yesterday, investors bid up all of the PIMCO muni bond funds (national and state specific), with PML up 3%, PMF up 4%, and PMX up 2%. They should all get crushed today and deserve to lose all of their premium valuations eventually.

What good are ultra-high distributions if you can't cover them? This has been my mantra for years, and yet, naive investors continue to fall for funds that appear to be offering much higher yields even while their NAVs erode.

And all of the PIMCO national municipal bond fund NAVs were eroding in 2022, with the PIMCO Municipal Income Fund II ( PML ) , $9.31 current market price , for example, down -23.0 % , including all distributions.

Compare that to say, the BlackRock MuniYield Quality III Fund ( MYI ) , $11.11 current market price , whose NAV was down only -16.4% in 2022 and after a distribution cut in October of last year, now has a very reasonable 4.3% current market yield (Federal tax-free) and an even lower 4.0% NAV yield.

But as a result, MYI, like many of the BlackRock and Nuveen municipal bond closed-end funds ("CEFs") that had adjusted their distributions down to reflect the current state of the markets, was being thrown out by shareholders last year and trading at up to -12% discounts, while the PIMCO municipal bond funds were maintaining their distributions and rising to higher and higher premiums despite their NAVs eroding even faster.

PML, for example, had an 8.0% NAV yield as of yesterday and was trading at a +5.6% market price premium while the PIMCO Municipal Income Fund ( PMF ) , $10.85 current market price , was trading at a sector high +13.3% market price premium!

To put that in perspective, PML's NAV yield of 8.0% was TWICE as high as MYI's 4.0% NAV yield as of yesterday. In the leveraged municipal bond CEF world, that is an anomaly that was beyond compare.

But reality hit yesterday. After the close, PIMCO cut PMF's distribution by -22% , PML's by -33%, and PMX's by -28% , along with many of their state-specific California and New York muni CEFs (see below).

It is insane to me that investors did not see or expect this to happen, especially after the funds were up + 2% to +4% yesterday at market price, when they should have known the risk heading into the first distribution declaration for 2023 yesterday. Well, they will learn a very hard lesson today.

Here is PIMCO's declaration for its CEF January distributions that came out yesterday. PIMCO's 3 national muni bond CEFs, PMF, PML, and PMX are highlighted in yellow below:

For further details see: