Preferreds performance leaves them exposed to higher rates


Investors in bank preferred securities (PGF -0.1%), (PFF -0.1%) may want to shift into shorter durations, says Barclays credit strategist Shobhit Gupta, as a strong first quarter has left their yields more exposed to interest rate risk.

Particularly interesting are some new-gen securities trading past their first call date and paying floating coupons. Generally trading below par, they have negative duration. Most also have minimum coupon floors ranging from 3.5%-5.57%, making it a little more challenging to figure their rate sensitivity.

Gupta's favorites are floating-rate preferreds from U.S. Bancorp (USB -1.3%) and Goldman Sachs (GS -2.7%), while those from Wells Fargo (WFC -1.7%) look rich thanks to their high coupon floor.

From other sites
Comments (2)
  • toomuchgas
    , contributor
    Comments (1035) | Send Message
     
    If short term interest rates rise in 2015 they will go from .25 to .50% and then stay there for a considerable time as the markets adjust. Initial decline then they'll go back to a slow bull.
    7 Apr 2014, 07:03 PM Reply Like
  • landingbudy
    , contributor
    Comment (1) | Send Message
     
    Agree completely.
    11 Apr 2014, 02:00 AM Reply Like
DJIA (DIA) S&P 500 (SPY)
ETF Hub
ETF Screener: Search and filter by asset class, strategy, theme, performance, yield, and much more
ETF Performance: View ETF performance across key asset classes and investing themes
ETF Investing Guide: Learn how to build and manage a well-diversified, low cost ETF portfolio
ETF Selector: An explanation of how to select and use ETFs