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Pimco Corporate & Income Opport Message Board

  • Eggplant101 Eggplant101 Apr 11, 2011 1:37 PM Flag

    Why the premium collapse?

    What happened? The premium to NAV was over 29% two weeks ago, and looks to be less than 9% now. What has changed? I never thought that kind of premium was sustainable, but why did this drop happen so quickly?

    Are the other high premium CEFs threatened?

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    • Eggplant: I would suggest that because of the run-up PTY was ripe for a sell-off.--The yield had dropped to about 6% which resulted in a very high premium. THEN in the last few days we had a "budget problem", possible "shut-down" of the govt. and persistent talk of "unstainable programs". Gold & silver rose (fear) and we heard much talk of increased interest rates. WHAT ELSE CAN HAPPEN!! I hold several pipeline cos. and mReits. They all are down sharpley. I started to lighten up two weeks ago but still "took a bath" today. ---It's all about INTEREST RATES.
      GLTU --You are NOT alone.

    • this was meant for eggplant

    • While there is no real answer to your question, it was only a matter of time until this happened.

      Quite likely, this will 'over-correct' on the downside at some point, although it is impossible to say when.

      Presumably, paying anything over NAV is risky since it's basically a 'management' premium which is ultimately subjective.

      • 1 Reply to Medahorn
      • Medahorn< there is a real answer u and I may not know what it is but there is a real answer and it may or may not over-correct. Likely and unlikely r judgments that predict the future terms I stay away from using. finally "paying anything over NAV is risky" may or may not be true since the average last 3-yr premium average is 8-9% I would say that ur assertion is not commensurate with the historical #s as it relates to the NAV premium %

    • If u don't know a bloated pig when u see one, ur in the wrong biz!!

      • 1 Reply to gargano1234
      • gargano1234, you say: "If u don't know a bloated pig when u see one, ur in the wrong biz!!"

        But that is not really the question I ask. I am asking why now? What was the precipitating event? Is there new information? As far as I can tell, NOTHING has changed, yet in the last 7 trading days the premium has gone from 25% to 9%. That's a huge move for this CEF. I do not ask whether a premium is justified, or how big it should be, and of course that would be a different discussion altogether.

        Also, in this same time, the NAV is up nearly 1%. If NAV was collapsing, then I could see the premium under pressure, but that has not happened.

        This is a bona fide mystery.

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