PTY Vs. PDI: This Is The Wrong Time For PDI

2025-04-08 12:05:40 ET

Summary

• Since my last analyses on PDI and PTY, the spread between short and long treasury rates has become negative, resulting in an inverted yield curve.
• This heightened risks for PDI more than PTY because of PDI’s larger exposure to mortgage-related assets and also its heavier leverage.
• These considerations have led me to downgrade my PDI rating to sell.
• For income-oriented investors, I suggest PTY.
• Despite its lower yield (still about 11% though), I see a better total return potential.

PTY and PDI CEF: yield curve inversion

I last analyzed the PIMCO Corporate and Income Opportunity Fund ( PTY ) back in Feb 2025. That article was titled “PDO Vs. PTY: This Chart Shows Why I Now Prefer PDO”. As the title hinted, that analysis compared PTY to its PDO with a focus on their relative yield spread. The article ended with a hold rating for PTY based on the following considerations:

The thick yield spread between PDO and PTY suggests PDO ’s wide margin of safety, further augmented by its much lower price premium. I am also more optimistic about PDO's mortgage-related assets and feel quite pessimistic about PTY's high-yield credit exposure.

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