Investment Strategies

Q3 Muni Market Update: PIMCO Flexible Municipal Income Fund (MuniFlex)

We believe MuniFlex is well-positioned to capitalize on a ripe opportunity set, supportive technical factors, and strong forward-looking returns for the broader muni asset class going forward.

More from this section

Read Transcript

Text on screen: PIMCO

Text on screen: The Market

Text on screen: TITLE – Municipal fund outflows persist amid broader rate market volatility ; SUBTITLE – 2022 YTD vs. 2023 YTD Industry Fund Flows

Image on screen: A line graph shows year-to-date cumulative municipal outflows 2022 YTD versus 2023 YTD. A horizontal line representing zero outflows is situated near the top of the graph, with increasing outflows marked by a negative progression down the Y-axis. Outflows for 2022 YTD were $91.5 billion, with the line on the graph descending steadily and steeply from January to September. By contrast, during the same period for 2023, outflows were much less, totaling $12.0 billion. While the outflows are shown by a slightly declining green line in 2023, it is relatively flat compared with last year’s outflows.

While the first half of 2023 was broadly a strong period for municipal bond performance, The third quarter was a materially more challenging environment for the asset class.

Net negative supply (meaning reinvestment capital outpacing new issuance) throughout the summer months of July/August in the third quarter was a supportive technical, but rising rates paired with an acceleration of muni fund outflows, particularly in September, resulted in the BBG Muni Bond Index and High Yield Muni Bond Index, underperforming their taxable fixed income counterparts over the quarter. Although high yield muni spreads tightened roughly 20bps over the quarter, the main driver of the High Yield segment’s underperformance relative to IG was duration, as the High Yield index carries ~1yr more of duration vs IG, and tax-exempt yields rose meaningfully over the period as represented by the AAA tax-exempt muni yield curve.

The move higher in rates was a significant headwind in the third quarter, but today, yields are sitting at extremely attractive levels, with the IG Muni Index Yield To Worst hitting it’s 10+ year high, the highest level since November of 2008, during the Global Financial Crisis.

While Year To Date outflows have extended to 12 Billion, it pales in comparison to 2022 where we saw the largest muni outflow cycle on record with 122 Billion leaving the asset class. While we don’t expect any immediate reversal to inflows, we’d expect to see an influx of demand back into the market as rate volatility subsides and the Fed’s path for longer-term policy becomes clearer.

With yields remaining at their highest levels in recent history alongside what we expect to be resilient credit conditions ahead, our muni outlook remains highly constructive, keeping in mind the potential for ongoing near-term volatility.

Text on screen: MuniFlex positioning

Text on screen: TITLE – Current portfolio positioning

Image on screen: The figure shows a table listing four key MuniFlex statistics: Duration, effective leverage ratio, private placements, and high-yield exposure. The first row of the table highlights duration, listed in the first column. The second column shows current duration, at 7.49 years. The next column shows average duration, which is 7.36 since inception of the fund on 15 March 2019. On the right-hand side, a column shows horizontal plots of historical ranges. For duration, the current level of 7.49 years is just to the left of the middle of the duration’s historical range of about 6.2 to 9.3 years. Moving down to the next row, the table focuses on the effective leverage ratio, which is 23%, compared with an average of 21% since inception. A horizontal plot on the right shows the current ratio of 23% around the middle of its historical range of roughly 12% to 34%. The next row shows private placements, ranging historically between 8% and 25%, with the current level of 24%. In the final row at the bottom, high yield is highlighted. The current level is 35%, above the average since inception of 33%, near the far right of its historical range between 18% and 40%.

MuniFlex has maintained a moderate risk profile – adding exposure where we are finding attractive opportunities but doing so cautiously amid persisting volatility and ongoing economic uncertainty.

Given the current shape of the tax-exempt yield curve with the 2-10yr inversion but a steep long-end, we continue to structure the portfolio with a barbell approach, selling front-end and intermediate risk with richer valuations while pairing ultrashort floating rate exposure with long duration bonds that are trading at cheap levels.

We’ve continued to increase interest rate exposure modestly given attractive long-end opportunities albeit still what we would consider neutral at 7.5 years, in line with the Fund’s long-term average amid continued rate volatility.

From a leverage perspective, we continue to maintain liquidity and dry powder to aim to take advantage of further opportunities as they present themselves, with current leverage well below the maximum of 42.5%.

We continue to find value in private placement muni opportunities, currently running a 24% allocation relative to our 17% historical average.

In fact, one of our highest conviction sectors is affordable housing, which is predominantly accessed through private placement deals. Within affordable housing, we remain focused on Low Income Housing Tax Credit, tax-exempt bonds and loans which typically have lower LTVs and less default risk than similarly rated traditional muni credit. MuniFlex’s interval fund structure positions the fund to invest in these less liquid opportunities to seek a meaningful yield premium.

More broadly, in terms of sector positioning, we have been increasing exposure to a number of other areas.

For example, we are finding increasing opportunities within both the special tax and pre-paid gas sectors. Many of these special tax opportunities provide resiliency in cash flows with strong collateral while pre-paid gas bonds carry senior financial institution risk, and area of the market we know very well as a firm and favorite today. 

Also, we’re finding attractive opportunities in the broader housing space, which more recently includes tax-exempt Freddie Mac guaranteed housing bonds with fully tax-free yields in the 4.75-5% range. We have been able to purchase some of them at spreads as wide as 50bps relative to maturity matched BBB risk, which we see as a tremendous relative value opportunity.

Lastly, we continue to find investment grade opportunities with very attractive yields, particularly 15 yrs out on the curve and are also constructive on select High Yield opportunities that may present attractive relative value with strong risk-return profiles in potential downside scenarios.

Text on screen: The Market

Text on screen: TITLE – Yields are historically attractive and provide strong forward looking potential

Image on screen: There are two charts side-by-side. The bar chart at left shows the Yield to Worst (YTW) range for 10-year Investment Grade and High Yield bonds as measured by the Bloomberg Municipal Bond Index and the Bloomberg High Yield Municipal Bond Index, respectively. The Bloomberg Municipal Bond Index reached its highest level observed since 2008; the taxable equivalent YTW (assuming the highest federal tax rate) for the index was 7.31% as of September 30, 2023. The Bloomberg High Yield Municipal Bond Index reached its highest yield since 2017. The taxable equivalent YTW of the HY Muni Index is 10.51% as of September 30th 2023. The line chart at right show the Yield to Worst and the Forward 10-Year Return for the Bloomberg Municipal Bond Index. Looking back to 1980, the starting point of the YTW is nearly perfectly correlated (0.99) to 10-year forward returns for the Bloomberg Municipal Bond Index.

As mentioned previously, yields are sitting at compelling levels today, particularly for higher quality investment grades bonds.

The IG Muni Index has reached its highest level observed since the Global Financial Crisis in 2008. The taxable equivalent Yield To Worst, assuming the highest federal tax rate, for the index was 7.31% as of September 30, 2023.

The High Yield Muni Index has reached its highest yield since 2017, surpassing previous peaks reached during the Covid-19 correction in March 2020. The taxable equivalent Yield To Worst of the High Yield Muni Index is 10.51% as of September 30th 2023. Simply put, today is among the most attractive entry points municipal investors have seen since the Global Financial Crisis.

On top of that, looking back to 1980, starting point Yield To Worst is nearly perfectly correlated to 10-year forward returns for IG munis, creating an attractive opportunity for tax-aware investors to deploy capital at current levels. In other words, periods where you have similarly seen elevated yield levels have historically been followed by periods of strong returns.

Given Muniflex’s ability to provide liquidity during times of sell-off and capitalize on dislocations, the Fund can harness this forward looking value even more, seeking to maximize yield and overall upside in a recovery to lock in attractive yields with potential capital appreciation opportunities for the future.  

Bottom line: historically attractive yields, ongoing strength in fundamentals, and a ripe pipeline of opportunities ahead make MuniFlex one of our highest conviction municipal strategies today.

Text on screen: The recap

Text on screen: TITLE – The recap: Outflows bring opportunities

Image on screen: A graphic lists bullet points that follow along with the narration of the video. The bullets are divided into three sections: Market Review, Portfolio Positioning and Yield Opportunities Ahead. The bullet under Market Review reads, “Less supportive technical factors broadly hindered municipal performance in Q3, though valuations became more attractive alongside decade high yields. The bullet under Portfolio Positioning reads, “The Fund continues to take advantage of the ripe opportunity set, increasing duration on the margin and adding exposure to favorable areas such as the housing sector. The bullet under Yield Opportunities Ahead reads, “The highest yields seen in over a decade paired with the correlation of starting YTW and forward looking returns makes today a historically attractive time to deploy capital for municipal investors.”

Text on screen: For more insights and information visit

Text on screen: PIMCO


As of September 30, 2023. SOURCE: PIMCO, Bloomberg

Investors should consider the investment objectives, risks, charges and expenses of the funds carefully before investing. This and other information are contained in the fund’s prospectus and summary prospectus, if available, which may be obtained by contacting your investment professional or PIMCO representative. Please read them carefully before you invest or send money.

The fund is an unlisted closed-end “interval fund.” Limited liquidity is provided to shareholders only through the fund’s quarterly offers to repurchase between 5% to 25% of its outstanding shares at net asset value (subject to applicable law and approval of the Board of Trustees, the Fund currently expects to offer to repurchase 10% of outstanding shares per quarter). There is no secondary market for the fund’s shares and none is expected to develop. Investors should consider shares of the fund to be an illiquid investment.

Past performance is not a guarantee or a reliable indicator of future results. Portfolio structure is subject to change without notice and may not be representative of current or future allocations.

Portfolio structure is subject to change without notice and may not be representative of current or future allocations.

There can be no assurance that the trends discussed will continue. There is no guarantee that these investment strategies will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. No representation is being made that any account, product, or strategy will or is likely to achieve profits, losses, or results similar to those discussed.

Investment Grade (IG); High Yield (HY); US Federal Reserve (The Fed); Remarketable Variable Rate MuniFund Term Preferred Shares (RVMTP); Loan to Value (LTV); Great Financial Crisis (GFC)

IG Munis proxied by the Bloomberg Muni Bond Index

HY Munis proxied by the Bloomberg HY Muni Bond Inde

Yield to Worst (YTW) is the estimated lowest potential yield that can be received on a bond without the issuer actually defaulting.

Loan-to-value (LTV) ratio: a measure of lending risk that financial institutions and other lenders examine before approving a loan. Calculated by dividing the amount borrowed by the appraised value of the asset. Typically, higher LTV ratios are considered higher-risk loans.

A word about risk: Investing in municipal bonds involves the risks of investing in debt securities generally and certain other risks. Investors will, at times, incur a tax liability. Income from municipal bonds may be subject to state and local taxes and at times the alternative minimum tax. Investing in the bond market is subject to risks, including market, interest rate, issuer, credit, inflation risk, and liquidity risk. The value of most bonds and bond strategies are impacted by changes in interest rates. Bonds and bond strategies with longer durations tend to be more sensitive and volatile than those with shorter durations; bond prices generally fall as interest rates rise, and the current low interest rate environment increases this risk. Current reductions in bond counterparty capacity may contribute to decreased market liquidity and increased price volatility. Bond investments may be worth more or less than the original cost when redeemed. An investment in municipal closed-end funds will be subject to market risk, leverage risk, and various other risks depending upon the underlying assets owned by a fund. Equities may decline in value due to both real and perceived general market, economic, and industry conditions. Derivatives may involve certain costs and risks such as liquidity, interest rate, market, credit, management and the risk that a position could not be closed when most advantageous. Investing in derivatives could lose more than the amount invested. The use of leverage may cause a portfolio to liquidate positions when it may not be advantageous to do so to satisfy its obligations or to meet segregation requirements. Leverage, including borrowing, may cause a portfolio to be more volatile than if the portfolio had not been leveraged

An investment in an interval fund is not suitable for all investors. Unlike typical closed-end funds an interval fund’s shares are not typically listed on a stock exchange. Although interval funds provide limited liquidity to investors by offering to repurchase a limited amount of shares on a periodic basis, investors should consider shares of the Fund to be an illiquid investment. Investments in interval funds are therefore subject to liquidity risk as an investor may not be able to sell the shares at an advantageous time or price. The Fund anticipates that no secondary market will develop for its shares. There is no guarantee that an investor will be able to tender all of their requested Fund shares in a periodic repurchase offer.

There is no guarantee that an investor will be able to tender all or any of their requested Fund shares in a periodic repurchase offer.

PIMCO does not provide legal or tax advice. Please consult your tax and/or legal counsel for specific tax or legal questions and concerns.

PIMCO as a general matter provides services to qualified institutions, financial intermediaries and institutional investors. Individual investors should contact their own financial professional to determine the most appropriate investment options for their financial situation. This material contains the opinions of the manager and such opinions are subject to change without notice. This material has been distributed for informational purposes only and should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission. PIMCO is a trademark of Allianz Asset Management of America LLC in the United States and throughout the world. ©2023, PIMCO.

PIMCO Investments LLC, distributor, 1633 Broadway, New York, NY 10019, is a company of PIMCO.


Filters: Reset All


Close Filters Dropdown
  • Tags


  • Category


    Bond by Bond
    Economic and Market Commentary
    Investment Strategies
    PIMCO Foundation
    PIMCO Education
    View from the Investment Committee
    View From the Trade Floor
  • Order By


    Most Recent
() filters applied

Multimedia Finder

Filter By:
  • Bond by Bond
  • Careers
  • Economic and Market Commentary
  • Investment Strategies
  • PIMCO Foundation
  • PIMCO Education
  • View from the Investment Committee
  • View From the Trade Floor
  • Viewpoints
  • Understanding Investing
  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • K
  • M
  • N
  • P
  • Q
  • R
  • S
  • T
  • W
  • Z
Berdibek Ahmedov
Product Strategist, Equities and Multi-Asset
Del Anderson
Credit Analyst
Joshua Anderson
Portfolio Manager, Income and Asset-Backed Securities
Robert Arnott
Founder and Chairman, Research Affiliates
Andrew Balls
CIO Global Fixed Income
Rachel Betton
Justin Blesy
Asset Allocation Strategist
Meredith Block
ESG Research Analyst
Allison Boxer
David L. Braun
Portfolio Manager
Jelle Brons
Portfolio Manager, Global and U.S. Investment Grade Credit
Nathaniel Brown
Director of the PIMCO Foundation
Erin Browne
Portfolio Manager, Multi-Asset Strategies
Esteban Burbano
Fixed Income Strategist
Grover Burthey
Portfolio Manager, ESG
Libby Cantrill
U.S. Public Policy
John R. Cavalieri
Kenneth Chambers
Fixed Income Strategist
Stephen Chang
Portfolio Manager, Asia
Devin Chen
Portfolio Manager, Commercial Real Estate
Richard Clarida
Global Economic Advisor
Mathieu Clavel
Portfolio Manager, Alternative Credit
Tony Crescenzi
Portfolio Manager, Market Strategist
Josh Davis
Global Head of Risk Management
Pramol Dhawan
Portfolio Manager
Matt Dorsten
Portfolio Manager, Quantitative Strategy
Devin Ekberg
Senior Consultant, Advisor Education
David Fisher
Co-Head of Strategic Accounts, U.S. Global Wealth Management
David Forgash
Portfolio Manager
Preeyam Gandhi
Max Gelb
Product Strategist
Nick Granger
Portfolio Manager, Quantitative Analytics
Adam Gubner
Portfolio Manager, Distressed Debt
Bill Gurtin
Gregory Hall
Head of U.S. Global Wealth Management
David Hammer
Portfolio Manager
Mary Hoppe
Account Manager
Ray Huang
Portfolio Manager, Real Estate
Daniel H. Hyman
Portfolio Manager
Daniel J. Ivascyn
Group Chief Investment Officer
Henry Kao
Account Manager, Stable Value
Mark R. Kiesel
CIO Global Credit
Erica Kinsella
Product Strategist, ESG Strategies
Sean Klein
Head of Client Business Strategy – Client Solutions and Analytics
Kristofer Kraus
Portfolio Manager
Brian Kyle
Global Wealth Management
Raji O. Manasseh
Equity Strategist
Jason Mandinach
Head of Alternative Credit and Private Strategies
Samuel Mary
ESG Research Analyst
Kyle McCarthy
Alternative Credit Strategist
Vidur Mehra
Mohit Mittal
Portfolio Manager, Multi-Sector
Alfred T. Murata
Portfolio Manager, Mortgage Credit
John Murray
Portfolio Manager, Global Private Real Estate
John Nersesian
Head of Advisor Education
Roger Nieves
Rick Pagnani
Head of Insurance-Linked Securities
Sonali Pier
Portfolio Manager, Multi-Sector Credit
Christina Pihos
Defined Contribution Marketing
Steven Pogorelec
Global Wealth Management
Gavin Power
Chief of Sustainable Development and International Affairs
Chitrang K. Purani
William Quinones
Product Strategist
Lupin Rahman
Portfolio Manager
Graham A. Rennison
Quantitative Portfolio Manager
Libby Rodney
Steve A. Rodosky
Portfolio Manager
Emmanuel Roman
Chief Executive Officer
Steve Sapra
Senior Advisor
Jerome M. Schneider
Portfolio Manager
Marc P. Seidner
CIO Non-traditional Strategies
Emmanuel S. Sharef
Portfolio Manager, Asset Allocation and Multi Real Asset
Greg E. Sharenow
Portfolio Manager, Commodities and Real Assets
Candice Stack
Head of Client Management, Americas
Kimberley Stafford
Global Head of Product Strategy; Responsible for Sustainability Oversight
Cathy Stahl
Global Head of Marketing
Jason R. Steiner
Portfolio Manager, Private Lending and Opportunistic Strategies
Christian Stracke
President, Global Head of Credit Research
Geraldine Sundstrom
Portfolio Manager, Asset Allocation, EMEA
Richard Thaler
Distinguished Service Professor of Economics and Behavioral Science at the University of Chicago's Booth School of Business
Mark Thomas
Account Manager, Global Wealth Management
Jessica K. Tom
Senior Credit Analyst
François Trausch
CEO and CIO of PIMCO Prime Real Estate
D. Alan Trice
Jerry Tsai
Client Solutions and Analytics
Matt Tuten
Portfolio Manager
Megan Walters
PIMCO Prime Real Estate
Qi Wang
CIO Portfolio Implementation
Jamie Weinstein
Portfolio Manager, Corporate Special Situations
Paul-James White
Portfolio Manager
Tiffany Wilding
Andrew T. Wittkop
Portfolio Manager, Treasuries, Agencies, Rates
Jerry Woytash
Portfolio Manager, Short-Term Desk
Kirill Zavodov
Portfolio Manager
Mike Cudzil
Portfolio Manager
Chris Brightman
Chief Executive Officer and Chief Investment Officer, Research Affiliates
Ben Bernanke
Chair, Global Advisory Board
Seray Incoglu
Portfolio Manager, Commercial Real Estate
  • Alphabetical
  • Most Recent
Section : Date : Experts :
Reset All
Decoding Quant Strategies
Capitalizing on Change in the Real Estate Market (Video)

Capitalizing on Change in the Real Estate Market(video)

Capitalizing on Change in the Real Estate Market

Discover potential opportunities in the real estate market from a panel discussion at our recent Alternatives Investor Conference.

Navigating Uncertainty with Alternative Investments

Unlocking the Power of Alternative Investments

Adapting to the Evolving Credit Landscape

Decoding Quant Strategies

Adapting to the Evolving Credit Landscape (Video)

Adapting to the Evolving Credit Landscape(video)

Adapting to the Evolving Credit Landscape

Learn how to navigate the shifting dynamics in banking and private credit from a panel discussion at our recent Alternatives Investor Conference.

Navigating Uncertainty with Alternative Investments

Unlocking the Power of Alternative Investments

Capitalizing on Change in the Real Estate Market

Decoding Quant Strategies

Unlocking the Power of Alternative Investments
Navigating Uncertainty with Alternative Investments
The Cost of Cash: Talking to Clients about their Cash Allocations

The Cost of Cash: Talking to Clients about their Cash Allocations(video)

The Cost of Cash: Talking to Clients about their Cash Allocations

Investors often keep cash in their portfolios for liquidity needs and defensive reasons, and cash balances are currently at record high levels. Help investors overcome concerns about putting cash to work and how best to position cash allocations in this environment to maximize potential. Watch now to learn why the time is right to consider moving cash off the sidelines into fixed income.

To learn more, contact your PIMCO Account Manager.

Load more results Load {{cCtrl.fetchResults}} more results