BND - PDI: Stable Interest Rates Make This CEF A Buy

2024-05-29 07:41:28 ET

Summary

• Interest rates have stabilized as a "Higher For Longer" scenario becomes increasingly likely due to stubborn inflation.
• The PIMCO Dynamic Income Fund has performed well, outperforming benchmarks and offering a high dividend yield.
• As data suggests, the likelihood of near-term rate cuts is waning, PDI is outperforming peers.
• We reassess our previous thesis against new information and gauge PDI's attractiveness as an income-producing asset.

Whether we like it or not, “Higher For Longer” is shifting from a hypothetical downside scenario to the likely outcome. Over the past several years, the rapid increase in interest rates had a ripple effect across the economy. As the Federal Reserve moved to increase the federal funds rate to the highest target range in over a decade, yields across durations followed upward. Most notable, the ten-year treasury yield increased from nearly 0% to 5% within a period of one year.

Shifting interest rates impacted asset classes broadly. However, fixed income assets were the most heavily impacted. Opportunity cost dictated declining prices for bonds with nowhere to hide. The four years following the pandemic marked an extraordinary rollercoaster ride for bonds....

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