Preferreds and Munis

On Monday we posted on the struggling preferred stock market.  Since its lows earlier in the week, the S&P Preferred Stock index has rallied sharply off the lows. 

The decline and snapback rally in preferreds reminds us of the collapse in municipal bonds and their subsequent rally back in February.  Below we highlight a chart of PFF (preferred stock ETF) and MUB (muni-bond ETF) since last September.  Both are supposed to be relatively stable asset classes, but they have been anything but this year.  But hopefully PFF can rally back like MUB did in the month or two following its February bottom.

click to enlarge

Comments

[Lisa]

Excellent chart -- as always.

[J. Howle]

Other than the fact that both MUB and PFF have interest rate risk there is very little correlation in the credit risk of the two. Therefore I would find it hard to draw the analogy. PFF is 78% financials and interest rates are rising. It may get some help if rates turn south again. Watch out for another fall in MUB if one of the old bond insurers gets taken into receivership.

[BOHICA]

Hey, J. Howle, these guys aren't interested in how little these vehicles really correlate or how meaningless it is that one vehicle reminds them of the other, okay? They've got their pictures up, given you a chart, and they will not be taking questions, so just move on to the next article.