Animal Spirits Podcast: Talk Your Book – Investing in Public and Private Credit

Host: Michael Batnick & Ben Carlson
Guest: Jason Duco, Executive Vice President & Portfolio Manager at PIMCO
Date: October 6, 2025

Episode Overview

In this episode of Animal Spirits: Talk Your Book, Michael Batnick and Ben Carlson sit down with Jason Duco from PIMCO to demystify the increasingly complex landscape of fixed income investing. The conversation navigates the distinctions and trends between public and private credit, the repercussions of market policy shifts, current opportunities and risks in the bond market, and how PIMCO makes allocation decisions in an evolving interest rate environment. The discussion is accessible but detailed, highlighting the tools and trade-offs for modern investors seeking yield beyond traditional government bonds.

Key Discussion Points & Insights

1. The Evolving Credit Market Landscape

[00:45 – 02:43]

• Michael remarks on how straightforward bond investing used to be, with a primary focus on Treasuries and broad indices, compared to today's proliferation of options like asset-backed securities, CLOs, and private credit.
• Jason Duco joins to explain how PIMCO navigates this landscape and manages their massive $2 trillion in assets.
• The interview is noted for its professional yet approachable tone, eventually turning into a more candid conversation.

2. PIMCO’s Macro View

[02:56 – 04:11]

• Jason contextualizes the current market, noting resilient GDP growth (recently revised up) but foreseeing gradual deceleration toward the end of 2025 (~1% GDP in Q4).
• Quote: “We think we’ll see a little bit of a deceleration in the back half of the year… But nothing too alarming there.” – Jason Duco [03:15]

3. Tariffs, the Consumer, and Corporate Responses

[04:11 – 05:46]

• Despite increased tariffs, the U.S. consumer remains resilient, surprising many economists.
• Corporates have mostly passed on costs, contributing to modest inflation upticks.
• There’s concern about labor market weakening as companies adapt to tariff impacts.
• The Fed recently made its first rate cut, with expectations of two more this year.

4. The Bond Market’s Decade of Pain & The 60/40 Debate

[05:46 – 07:49]

• Ben highlights how the 2020s have been historically rough for Treasuries due to rising rates.
• Jason asserts the worst is behind, with real yields attractive again: “Bonds are back.”
• Traditional diversification benefits for bonds are returning as the Fed cuts rates and yields remain appealing.

5. Volatility, Yield Spreads & Curve Dynamics

[07:49 – 09:39]

• Despite economic volatility, bond price volatility is at a four-year low ("MOVE index").
• The yield curve has shifted: previously inverted, now flattening, with value picked up on the 5-to-10-year range.
• Quote: “Even if it looks like the 10-year’s sort of been range-bound, there’s been a lot of movement around that 10-year point.” – Jason Duco [08:15]

6. Where Caution Is Warranted: Private Credit & High Yield

[09:39 – 11:54]

• Jason points to the direct lending/private credit space as “not offering great relative value” in 2025 due to fierce competition, tight spreads, and diminished transparency/liquidity.
• High-yield bond markets are also tight, but with underlying dispersion: higher quality overall but pockets of risk among weaker issuers.
• Quote: “We generally have been shying away from that area of the market… It just feels very tired at this point.” – Jason Duco [10:51]

7. Explaining Bank Loans, High Yield, and Private Credit

[11:54 – 13:23]

• Jason distinguishes:
  • High Yield: Unsecured, fixed-rate, usually larger borrowers.
  • Bank Loans: Secured, floating-rate, often senior in capital structure.
  • Private Credit: Usually smaller companies, more flexibility but less liquidity.
• Shift: Bank loans and CLOs have taken share from high yield, with private credit absorbing smaller borrowers.

8. Public vs. Private Credit Interplay

[14:28 – 16:51]

• Massive flows into private credit are creating real-time competition for spreads and looser loan structures.
• Private capital acts as a safety valve in risk-off environments, occasionally muting default rates—currently below 2% for two years.
• Quote: “Having that capital out there, it’s going to mute your default rate.” – Jason Duco [16:42]
• Concern: Surge in capital supply has led to lower returns and investors compromising on structure and liquidity.

9. Liquidity and Structures in Private Lending

[17:26 – 19:50]

• Fund structures restrict redemptions ("gates"), limiting investor ability to exit during stress; marks may not be fully reliable in such periods.
• The trade-off for illiquidity should be at least 200 basis points—currently not always available.

10. PIMCO’s Multi-Sector Approach (PYLD ETF)

[19:50 – 21:42]

• The PYLD (PIMCO Multisector Bond ETF) is benchmark-agnostic, with the ability to invest outside the Barclays Agg, targeting relative value across credit, duration, and market segments.
• Securitized and agency mortgage-backed securities currently offer better risk-adjusted returns than corporates.

11. Mortgage-Backed Securities and Housing

[22:22 – 24:12]

• Agency MBS market offers wide spreads due to lack of demand (banks/Fed retreating).
• Expected to perform well in a Fed-cutting cycle.
• Narrowing MBS spreads could come from increased Fed support or further rate cuts.
• Quote: “It’s one of our favorite trades at PIMCO for a variety of reasons… It trades cheap to investment grade credit.” – Jason Duco [23:03]

12. The AI (Hyperscaler) Debt Wave

[25:00 – 26:36]

• Big Tech (hyperscalers) are turning to both asset managers and private debt to fund AI/data center expansions.
• New Trend: Private investment-grade debt for these very high-quality borrowers. Offers extra yield to investors (100 bps+).
• This may become a secular theme in credit allocation.

13. Where PIMCO Sees Value in Private Credit

[27:02 – 28:58]

• While direct lending is less attractive, structured private credit (bespoke, outside traditional ABS/RMBS/CMBS deals) offers incremental spread, especially as banks pull back from certain assets.
• PIMCO’s flexible interval fund (Pflex) is designed to take advantage of these opportunities.

14. CLO Markets: Transparency, Risk, and Opportunity

[28:58 – 31:57]

• Jason dispels the notion that CLOs are opaque; CLOs, especially AAA tranches, are highly transparent and resilient.
• AAA CLO ETFs are growing fast and offer good liquidity and diversification, though investors must remember there is still credit risk.
• Floating rate aspect means yield will compress as the Fed cuts rates, but these remain attractive for diversification and resilience.
• Quote: “Unlike the direct lending market, in the CLO market you have full transparency actually into what you’re buying.” – Jason Duco [29:21]

15. The Future of Private Credit

[31:57 – 33:18]

• Private credit will remain a significant fixture but may plateau as both capital deployment speeds and competitive forces curb growth.
• Growth is migrating toward private investment grade and more securitized markets.

16. Real-World Application: Refinancing & Housing Relief?

[33:18 – 34:25]

• Jason expresses hope the housing market will see relief soon, which would be positive for the broader economy.
• More creative mortgage solutions (e.g., ARMs, IOs) may proliferate until a more favorable yield curve prevails.

Memorable Quotes

“Bonds are back. I mean, we have real yields now unlike we had for a decade plus coming out of the GFC.”
— Jason Duco [06:31]

“We generally have been shying away from [corporate direct lending]... It just feels very tired at this point.”
— Jason Duco [10:51]

“Having that capital out there, it's going to mute your default rate. And by the way, in high yield, we're seeing default rates for two years in a row now, less than two percent.”
— Jason Duco [16:42]

“You want your money back at times of dislocation or times of fear and you can’t get that. ... Those are our fundamental concerns.”
— Jason Duco [18:45]

"It's one of our favorite trades at PIMCO for a variety of reasons … It trades cheap to investment grade credit. It's very resilient."
— Jason Duco [23:03]

“Unlike the direct lending market, in the CLO market you have full transparency actually into what you’re buying.”
— Jason Duco [29:21]

Notable Segments with Timestamps

• PIMCO’s House View & Economic Outlook: [02:56 – 04:11]
• Bond Volatility Dynamics: [07:49 – 09:19]
• Risks in Direct Lending & High Yield: [09:39 – 11:54]
• Distinguishing Bank Loans, High Yield, Private Credit: [11:54 – 13:23]
• Public vs. Private Credit Competition & Impact: [14:28 – 16:51]
• PYLD – PIMCO’s Multi-Sector Active ETF: [19:50 – 21:42]
• Mortgage-Backed Securities Opportunity: [22:22 – 24:12]
• AI/Hyperscalers & Debt: [25:00 – 26:36]
• CLOs, Transparency, & Growth: [28:58 – 31:57]
• Private Credit’s Path Forward: [31:57 – 33:18]
• Housing Market & Mortgage Rates Discussion: [33:18 – 34:25]

Final Notes

The episode expertly blends approachable explanations with deep expertise, offering valuable frameworks for assessing risk, value, and the shifting boundaries between public and private credit markets. Listeners come away with a nuanced appreciation for fixed income strategies in the modern era—and how, even in "the most complex" bond market ever, good questions and a solid framework still drive smart investment decisions.

For more information on PIMCO’s strategies: pimco.com