The human mind craves explanations. The income investor’s mind craves an explanation for the crazy trend of taxable PIMCO CEF distribution coverage.
One theory has it that the poor PCI distribution coverage is due to MBS refinancing activity.
If this were the case then the distribution coverage of PCM, which holds a greater proportion of agency and non-agency MBS, would be even worse. Instead, what we see is that its coverage has been stellar.
Another theory has it that PIMCO CEF taxable distribution coverage has fallen due to US dollar weakness. However, if we simply compare the trend in the dollar index (not a bad metric of the dollar since the PIMCO funds hold positions in currencies underlying this index) then we see that there is little co-movement between the two.
Unfortunately, misinformation is alive and well in the PIMCO CEF space. Caveat emptor.