Preferred Securities Market Insight - A Tale of Two Preferred Markets

Our preferred securities specialists look back at the market’s performance and provide incisive commentary to help you make sense of what drove the market—and what may be on the horizon for preferred investors.

Key takeaways from the latest edition:

May was a study in contradiction. Treasury yields moved higher, inflation and labor market data surprised to the upside, rate cuts were priced out and Federal Reserve commentary leaned hawkish. But equities rallied, credit spreads tightened and investor risk appetite improved.

 Structure drove returns. The $25 par retail preferred market posted negative returns in May, while $1,000 par institutional preferreds generated positive returns. The divergence reinforces an important point: Preferreds aren’t a homogeneous asset class.

Preferred market technicals remain unusually supportive. Banks have issued roughly $10 billion of $1,000 par preferreds this year and have called approximately $15 billion. Preferred ETFs attracted more than $600 million of inflows during May, creating a favorable supply-demand backdrop.

We remain constructive but selective. All-in yields remain attractive, bank fundamentals are solid and technicals continue to support the asset class. However, spreads have tightened, and the next phase of returns is likely to reward structure and security selection more than broad beta exposure.