NaY-encapsulated Pd-Co bimetal catalysts of various Co/Pd ratios and pretreatment conditions were used for carbon monoxide hydrogenation. Preparation conditions have an overwhelming effect on the active phases and the catalyst selectivity. In Pd/NaY and bimetal samples with very low extent of Co reduction, the formation of Pd carbide is detected by XRD. On these catalysts methane is formed when particles are very small, but after some agglomeration, methanol is the dominant primary product of CO hydrogenation, secondary reactions on strong Bronsted-acid sites lead to dimethyl ether and heavy hydrocarbons. In bimetal PdCo/NaY samples calcination and reduction conditions are critical for the formation of PdCo alloy particles, which prevents the formation of Pd carbide, and methane selectivity is high. A higher Co content of the alloy particles is obtained after reduction at high temperature; these samples show a signature reminiscent of Fischer-Tropsch catalysts.