Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       
 
 
 
Blog Home
Bob Carey
Chief Market Strategist
Bio
X •  LinkedIn
 

  Preferreds Still Attractive On A Relative Basis
Posted Under: Bond Market
Supporting Image for Blog Post

 

View from the Observation Deck

  1. The yield to maturity on the BofA Merrill Lynch U.S. Preferred Stock Fixed Rate Index closed January 2013 at 6.14%, the lowest it has been on the last day of January since 2004, when it stood at 6.10%.
  2. In January 2004, the index posted a yield spread of 197 basis points over the yield on the 10-Year T-Note (see chart), less than half the 415 basis point spread on January 31, 2013.
  3. Inflation, as measured by the Consumer Price Index, stood at 1.9% in January 2004, compared to 1.7% in December 2012. So that doesn't explain the difference.
  4. The difference between the two climates is the fallout from the financial crisis of 2008-2009. Approximately 80% of all preferred securities are issued by financial firms.
  5. The yield to maturity on the BofA Merrill Lynch U.S. Preferred Stock Fixed Rate Index closed January 2009 at 12.12%, while the 10-Year T-Note slid to 2.84% as investors flocked to safe havens.
  6. With the aid of the Federal Reserve's quantitative easing initiatives, the yield on the 10-Year T-Note was driven down as low as 1.39% in July 2012. It stood at 1.99% on January 31, 2013.
  7. There are not many opportunities for investors to get a 6.0% yield in this climate, let alone from an investment grade security.
  8. Preferreds still measure up, and with a generous yield spread to boot.

This chart is for illustrative purposes only and not indicative of any actual investment. The illustration excludes the effects of taxes and brokerage commissions or other expenses incurred when investing. Investors cannot invest directly in an index. The BofA Merrill Lynch U.S. Preferred Stock Fixed Rate Index ($25 par) consists of investment grade, fixed and fixed-to-floating rate U.S. dollar denominated preferred securities.

To download a PDF of this post, click here.

Posted on Thursday, February 7, 2013 @ 3:18 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
MARKET ANALYSIS
Market Commentary and Analysis
Market Commentary Video
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email
 


 PREVIOUS POSTS
Covered Call Strategies Usually Yield To Growth When Bull Markets Arise
The Equity Story: Still a Good Read
Nothing Stagnant About The S&P 500
Some Perspective On The Performance Of The S&P 500
Bank Margins Getting Squeezed Despite More Lending
Corporate America Getting Its Fiscal House In Order
A Happy New Year!
When Being First Isn’t Best
Sometimes Less Is More
Majority Of Top Subsectors In 2012 Consumer-Driven
Archive
Skip Navigation Links.
Search by Topic
Skip Navigation Links.

 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2024 All rights reserved.