I am looking at a 5% allocation to pty, a bond fund that currently yields 11.7% and is trading at a 3% premium. This fund historically trades at a larger premium on the order of 15 to 20%. Additionally, the drip can be structured to be re invested at nav or a five percent discount to market. Anyone have thoughts on the downside?

PTY is a closed end bond fund (PIMCO Corporate & Income Opportunity). It does not yield 11.7%. You are looking at the Distribution Rate/Yield which could include Return of Capital (ROC). Latest monthly payment shows distribution amount of 0.1188 which is made up on 0.0987 Income and 0.0205 ROC. If Income is unable to provide for the full distribution amount, management will increase ROC at their discretion.

Income yield is (0.0987*12)/11.84 = 10%. But there is no guarantee it will remain at 10%.

Note that in the last 5 year period NAV has dropped from around 14 to now 11.45. This is a strong indication that a material chunk of the distribution over time is ROC. This doesn't mean you won't end up with a positive total return. However, it will significantly less than the double digit return you may be anticipating. 5-Year total return is -0.61 and 10-Year is 8.66 per Morningstar.

Also per Morningstar, about 70% of assets are below investment grade (BB and below). You will be taking on a lot of credit risk. During economic downturns the fund will behave more like equities and severely go down in price. In 2022 it lost 18%. Different from a high quality bond fund with only duration risk and act like a ballast.

You are correct that this fund rarely trades at a discount, possibly because of the PIMCO brand name. The reputation is well deserved. PIMCO is after all one of the largest if not the largest manager of fixed income in the world. I suppose PTY is an okay choice for the portion of your portfolio you would like to allocate to credit risk. Preferably do it in a tax sheltered account like Roth IRA to avoid paying taxes on the distributions.

https://www.cefconnect.com/fund/PTY

Morningstar: Cefs Xnys Pty