What Yield Was the Device That Just Hit PIMCO's High Income Fund?
You don't really expect to see huge spikes in large ($1 billion plus AUM) bond funds absent some significant fixed income news (or perhaps, internal scandal). So what's going on with the PIMCO High Income Fund (NYSE:PHK) today?
It might be easier to dismiss a gutting like that if volume were low, but, of course, it is not.
The fund has tended to trade at a significant premium to NAV of late, and has managed to demonstrate some rather dramatic returns to NAV over the last 12 months, so perhaps this is "normal"...
...but somehow we doubt it.
A bit of a volatility study anyone?
Back in March Zero Hedge opined:
Bill Gross' recent foray into a shadow government role may be just in time to avoid the depression from spreading onto the green, green grass of the Newport Beach country club. News is out that three of PIMCO's closed-end funds have postponed dividend payments declared February 2 as they "failed to meet the ratio of assets to borrowings set by regulators." The three harbinger funds are Pimco Corporate Income Fund, Corporate Opportunity Fund and High Income Fund. Scheduled payments on these funds will not be made either today or April 2 PIMCO said in a statement today. This is not the first time the bond manager has gotten in dividend trouble: last December it was forced to suspend dividends on 6 of its closed-end funds.
U.S. Securities law prohibits dividend payments if debt funds do not meet certain criteria: funds issuing debt are required to maintain net assets of at least 300% of leverage, while those selling preferred shares must maintain a 200% ratio.
Curiously, the three PIMCO funds all closed trading last week at a premium with the High Income fund's share trading at a 56% premium to NAV. While not much additional disclosure is available at this point, for PIMCO to be in any sort of trouble, after being the main asset manager riding high on the LTM treasury wave, can only be a portent of bad things to come.
PHK's habit has been an early month (1st, or 2nd) dividend declaration. Given that this is only a few days away, could it be that someone has gotten a premature whiff of the acrid, wafting odor of an impending dividend surprise?
(5 votes)
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on Wed, 12/30/2009 - 13:39
#177942
No worries.
Just another amped up 19-year old trader in Newport Beach who had one too many Red Bulls.
He hit the F11 key by mistake, but quickly recovered by hitting the F12 in rapid succession.
on Wed, 12/30/2009 - 21:37
#178558
Red Bull is for sissys. Back in the day real men did blow.
on Thu, 12/31/2009 - 00:09
#178628
Coke made The Street what it is today. Greedy, selfish, without souls. Coke was an important causal element in the evolution of the financial elite and its culture. It is little noted and probably cannot be quantified but NY City in the roaring 20's had a very active coke scene among the high rollers and one can assume that included in the financial sphere.
Show me a person who has done a lot of coke and I'll show you a person that has a dead spot around the heart. Some more than others but it's always there.
on Thu, 12/31/2009 - 08:12
#178728
You might be very right about that.
on Thu, 12/31/2009 - 20:00
#179548
sissy.
on Wed, 12/30/2009 - 13:43
#177949
Heh, looks like the same said trader started Riverboating SEED today.
Look at it go...
on Wed, 12/30/2009 - 16:27
#178199
Giddy up folks, the lyrics to the song are easy. Repeat after me!
SEED FEED GRO
SEED FEED GRO
SEED FEED GRO
SEED FEED GRO
All together now!
BUY BUY BUY
[repeat as many times until you own 200% of each stock]
on the serious side of things though. SEED repaid it's debt.
on Wed, 12/30/2009 - 13:44
#177952
Was today an ex-div date, perhaps?
on Wed, 12/30/2009 - 14:49
#178056
A 12-cent dividend does not cause a phenomenal $2+ drop in a matter of seconds.
on Wed, 12/30/2009 - 13:46
#177955
Briefing avers that the fund shifted the mixed to 50% HY from a previous higher mix on 11/13/09. Took some time for investors to catch this...ex-div perhaps??
on Wed, 12/30/2009 - 13:48
#177957
At least he is mixing in a little Sugar Free RED BULL now and then. Need to watch those extra calories as your heart is poping out of your chest.
on Wed, 12/30/2009 - 14:04
#177985
This isn't normal. What this is the participants in Pimco are exiting because they are aware Pimco is going to be stuffed with bad paper and set out to government pasture eventually.
This is the fate of all funds eventually on the road to full blown communism.
It's actually a bad move to go out of the fund seeing as government paper is the only paper in town...
unless you want to purchase gold or some other long term value commodity.
-MobBarley
on Wed, 12/30/2009 - 14:08
#177988
Lots of people dont really manage/pace their trading... which is one reason why there is good money for HFT liquidity providers.
I know a number of $B+ hedge funds who have enough alpha (~10%/ann) that they just say -- "Sell that position" and sometimes enter a market order to sell 10-50% of the daily volume, like now.
on Wed, 12/30/2009 - 14:16
#177998
Based on the comments here, I wonder if any of these posters actually trade at all. They'd be muuch better off if they didn't
on Wed, 12/30/2009 - 14:31
#178025
Got to believe the $1.00 decline today is a large capital gain distribution -- if you were in high yield in 2009, you had to make a lot gains.
Not sure why the spike down -- 4 million shares (out of 119 outstanding) traded in the 10 minute spike down to $8.81.
on Wed, 12/30/2009 - 14:44
#178040
the vol on PHK says maybe forced liquidation and stops, rumour?
on Wed, 12/30/2009 - 16:26
#178229
It's just year end window dressing. CNBC told me so. La, lala, lala, lala, la, lala, meds kicking in, lala, lala, la,la,la.....
on Wed, 12/30/2009 - 15:18
#178114
article on seeking alpha, telling what a bad investment it is to buy cefs that are returning capital trading at huge premiums.
on Wed, 12/30/2009 - 15:25
#178123
RUN FOR THE HILLS!!!! SELLL SELL SELL!!!! ITS GOING TO ZEROOO!!!!
on Wed, 12/30/2009 - 15:27
#178127
Or a HFT algo melt down.
on Wed, 12/30/2009 - 15:36
#178139
our world is one tragic comedy.
on Wed, 12/30/2009 - 16:06
#178186
Look at DPO, another closed income fund. Down 16% today. Somethin's up.
http://www.google.com/finance?q=NYSE:DPO
on Wed, 12/30/2009 - 16:07
#178193
Check out DPO (another closed income fund). Down 16% today. Somethin's up.
http://www.google.com/finance?q=NYSE:DPO
on Wed, 12/30/2009 - 16:14
#178204
looks like plain ol' liquidity premium at work. some portfolio manager assumed he could liquidate close to yearend. think again when dealing in CEFs.
on Wed, 12/30/2009 - 16:22
#178217
DPO began edging down at the open, and both PHK and DPO hit an ugly lod at about 10:15.
on Wed, 12/30/2009 - 16:24
#178222
Freakin weird ... never seen that before. Thomson-Reuters just went out for a few minutes too. Had to re-start. Time & trade shows there actually was a trade as low as 8.81 ... plus some huge volume trades after hours.
Guesses: flash trading, dark pools, HFT or somebody frakked up ..=*=..
on Wed, 12/30/2009 - 20:20
#178497
on Wed, 12/30/2009 - 20:25
#178503
30-Dec 10:57:37 PSE 8.85 100 152905 IntMktSwp 30-Dec 10:56:56 THRD 10.7 500 150179
From 10.75 to 8.85 in 30 seconds
on Wed, 12/30/2009 - 16:26
#178231
Would it be paranoid of me to suspect the presence of a causal link between this move and Mohammed El-Arian's recent comments?
As in, someone capable of significant market manipulation didn't like the comments very much?
on Wed, 12/30/2009 - 16:40
#178251
Am I still the only person calling for an investigation of Bill's Collusion with Hank Paulson in buying Billions in Fannie/Freddie bonds right before the Govt. promised to protect the bondholders?
on Wed, 12/30/2009 - 17:53
#178356
Newly acquired MiniMe Kashkari will handle that one for you anony...
on Wed, 12/30/2009 - 17:47
#178344
BAC had similar closed-end funds lower their dividend today:
http://www.bloomberg.com/apps/news?pid=20601087&sid=a4CnvKAGEEpk&pos=5
Maybe somebody is putting two-and-two together and can guestimate PHK is next...
on Wed, 12/30/2009 - 17:47
#178345
bah. some inflation convert took $7 appreciation and $1.20 in dividends and called it a day. relax. it's end of year.
on Wed, 12/30/2009 - 17:49
#178350
Novice question:
Wasn't that PPT that kicked in at around 3:30 to drive over the goal line for the winning touchdown and finish positive today? So cheer leader Betty Lou Bernanke could wear Timmay's Sorority pin?
on Wed, 12/30/2009 - 18:39
#178410
There is no need for the PPT any more. People "buy the close" almost every day (yesterday was a rare exception). Until that ISN'T the case the PPT can remain on vacation.
on Wed, 12/30/2009 - 18:29
#178397
Trouble in Hi yield land.
on Wed, 12/30/2009 - 19:35
#178456
Something big this way comes...but what? As the story alludes, this (and the past week's stock behaviour, with the PRE-2010 weakness) is eerily reminiscent of SEPTEMBER 2008...
on Wed, 12/30/2009 - 20:28
#178504
Maybe a precursor to Monday January 4, 2010? It will be interesting to see the action tomorrow on the last trading day of the year.
on Wed, 12/30/2009 - 21:14
#178538
Can someone explain the huge premium to NAV on some of these CEFs?
PHK: http://www.allianzinvestors.com/closedEndFunds/priceAndPerformance/daily.jsp
on Wed, 12/30/2009 - 22:08
#178570
There was an evac at NASDAQ today ... might be related.
on Wed, 12/30/2009 - 23:34
#178612
AIG + PHK = Holy Fuck, just a guess.
fast
on Thu, 12/31/2009 - 08:49
#178740
Maybe it was a margin call? I'm guessing that'll be the official reason anyway. Nothing to see people. Move along.
on Thu, 12/31/2009 - 13:37
#179164
Goss has been warning about this for weeks.....................
on Thu, 12/31/2009 - 15:21
#179296
JNK also got hit
on Thu, 12/31/2009 - 15:22
#179298
JNK also got hit
on Thu, 12/31/2009 - 22:51
#179643
Why would it be surprising to anyone that a closed portfolio of the worst bonds in the world, trading at a huge premium to made-up NAV, held by minimally-comprehending retail investors, and paying unsustainable dividends in excess of income would be volatile and prone to huge drops? Sensible people can buy any number of open-ended funds, ETFs, or individual bonds - CEFs like this one are a playground for speculators and fools.