Preferred Securities Market Commentary

Transcription

Preferred Securities Market Update
3rd Quarter of 2015
The preferred securities market rose 0.05% on average this quarter amidst a rising
bond market and a very volatile stock market. The BofA Merrill Lynch US Preferred
Stock, Fixed Rate $25 Par Index (p0p1) rose 1.73% and the BofA Merrill Lynch US
Capital Securities Index (c0cs) declined 1.29%. The difference between the retail and
institutional performance again can be primarily explained by certain issues within the
capital securities sector that have broken down from extension expectations rather than
par call expectations. The average dollar price of the two hybrid sectors decreased
$0.66 to close the period at $103.40; the average current yield increased from 6.10% to
6.17%; the average yield-to-worst spread relative to treasuries closed at 261 (36bps
wider). The 10yrUS Treasury note yield declined by 27bps this quarter closing at
2.06%. The graph below highlights the price change on the custom benchmark (stb2 =
50% p0p1 + 50% c0cs) and the 10yr US Treasury note during the quarter:
Review of July’s Investment Environment (p0p1 +1.62%; c0cs +0.06%):
The performance backdrop in July was impacted by the transmission effects of declining
commodity prices and the bond market’s focus on impending slow growth, which
challenges policymakers around the developed world. In the US, Treasury bond prices
A member of the Principal Financial Group®
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appeared to have made a triple bottom around mid-month, subsequently marching
steadily upward to close July returning about 3.8% -- the yield declined to 2.93% on
30yr Treasures, which finished 17bps lower (yet 18bps higher for the year). The yield
on the US Treasury 10yr note declined 12bps to 2.21%, which was 4bps higher than
where it closed last year. The S&P 500 rose about 2.1% and almost made a new high,
which compressed volatility to its low range (again) for the year. This combination of
lower US Treasury rates and lower equity volatility positively impacted most fixed
income classes in July, with the exception being the high yield sector. The junk market,
measured by the Bank of America Merrill Lynch High Yield Index (h0a0), declined
0.62% to yield 6.91%. Financial credit (measured by Bank of America Merrill Lynch’s
cf06 index) closed up 0.77% to yield 3.61% (down 9bps). Investment grade corporates
(measured by Bank of America Merrill Lynch’s c7c0 index) rose 0.82% to yield 4.38%
(down 7bps).
The hybrid sector enjoyed the benefit of lofty treasury and equity prices. The Fixed
Rate Preferred Securities Index (p0p1), which represents 70% of the retail $25 par
market and 30% selected $1,000 par securities that are eligible for the DividendReceived-Deduction, increased by $1.26 (on a bond-adjusted basis) to close yielding
4.75% -- this yield was 3bps lower than last month and 29bps wider on spread relative
to treasuries. The Bank of America Core Fixed Rate Preferred Securities Index (p0p2),
which represents the core of the $25par market, increased by $1.79 to close yielding
4.94% -- this was 5bps lower than last month and 32bps wider on spread relative to
treasuries. The Bank of America Merrill Lynch US Capital Securities Index (c0cs), which
represents the broad institutional capital securities market, increased by $0.48 to close
yielding 4.25% -- this was 2bps lower and 18bps wider on spread relative to treasuries.
The performance attributions for investment grade hybrids this month are as follows:

The institutional sector (measured by the c0cs index) rose by 0.06%

The (mixed) fixed rate retail sector (measured by the p0p1 index) rose by 1.62%
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
The core fixed rate retail sector (measured by the p0p2 index) rose by 2.11%
Our blended hybrid benchmark, (i.e., stb2 in the chart below = 50% c0cs / 50% p0p1)
increased by $0.50 and its average coupon was unchanged at 6.35% -- its blended total
return rose by 0.84% in July. The current yield of the benchmark stood still at 6.07%,
but widened by 24bps relative to comparable treasuries (+248bps). The chart reflects
the year to date path of the combined hybrid benchmark, which has been on a relatively
accretive path compared to 10yr Treasury notes, which have been quite volatile.
The core retail $25par sector (measured by p0p2) is 64bps cheaper than the
institutional $1,000 par sector (measured by c0cs) -- this is generally 28bps more than
average. The modified duration of the retail sector (8.5yrs) is 3.3yrs longer than the
modified duration of the institutional sector (5.2yrs) – this differential is 0.5yrs shorter
than it was last month which evidences some duration contraction that is typical of the
retail sector when rates decline. The chart below shows the return paths of both sectors
for the year:
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Last month we noted that the US economy is moving beyond its 6 th year of expansion,
which makes it now marginally longer than the length of the prior expansion (20012007) and more than 1yr longer than the average length of all post WWII expansions.
Typically, expansions don’t just fizzle because they are getting too long but rather,
expansions end because of financial friction. Often times this friction comes from forces
that are not easily foreseen, for example, the sub-prime crisis and the Internet bubble.
This time around those unforeseen forces are apt to be repercussions from the
implosion of commodity prices, which took a further dive this month to levels that wind
the commodity price clock back to 2002 with overall prices being off more than 60%
from their early 2008 peak (please see the chart below):
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What is remarkable about this Bloomberg commodity index measure (BCOM -- index of
22 exchange traded futures on physical commodities) is how it visually correlates to the
path of GDP growth in China. Consequently, as the path of growth in China goes, so
too does the price path for commodities. China’s growth slowing from more than 14%
to “just” 7% (and declining) is functionally equivalent to a virtual recession, which
explains the recent rate cuts in China. The country is still basically a secret society, but
the record fall in its foreign exchange reserves over the past few months should be a
beacon that capital flows are moving out. Indeed, it is peculiar that yuan positions with
the People’s Bank of China have been declining, because China’s economic growth is
still more than 3x the rest of the developed world. Perhaps, like corporate insiders,
investors inside China know that something is wrong and that internal excess (that
drove up the growth in internal demand along with asset prices) needs to be further
filtered and re-priced – this trend does not bode well for a bottom in commodity prices
quite yet.
Slowing growth around the world exacerbated by massive and growing indebtedness
has been a thematic investment backdrop of Spectrum’s for a couple of years now and
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we are yet to see an end in sight. The implication of this expanding Great Moderation
into a Greater (Global) Moderation is for policymakers to keep making bad policy that
only encourages politicians to make more (and more) promises and print more (and
more) fiat currency to buy less (and less) growth with more (and more) debt. For the
time being, this should continue to prop the share markets and compel investors to buy
against the confidence of more liquidity from central bankers. We saw only a brief
pause in European equities this month due to Greece’s brinksmanship and US equities
celebrated the Fed’s own game of kick-the-can as it delays the most talked about
(merely symbolic) rate increase in a decade.
Amidst the complacency, the market still has an invisible hand that can filter and
process opinions quite well. In hybrids universe this month, the best performers were in
the reinsurance group where merger momentum has driven up the preferred share
prices of PartnerRe, which had hoped to merge with rival reinsurer Axis Capital
Holdings only to be outbid by Italy’s Exor SpA along with its plan to give preferred
holders a coupon increase or and upfront payment. The worst performers were in the
step-up trust preferred utility sector in names like Integrys Energy and FPL Group where
the prospective floating rate coupons do not appear onerous enough to compel the
utilities to call them. Management’s trade-off of its moral obligation to the spirit of the
deal (i.e., for management to call the issues when the coupon steps up a year or two
from now) is similar to the re-pricing in certain insurance issues that we wrote about in
our special report last April. Lincoln Insurance Group, just this month, made a point of
telling investors on a conference call that it had entered into a swaps transaction to lock
in a low fixed cost on its hybrids with the “current intent to hold them”. Of course, the
primary reason for the company to leave these hybrids outstanding by doing this “back
room deal” is to prove to S&P that it has no incentive to redeem the bonds and thus
receive an extended equity credit from the rating agency. Besides the structural
aspects to hybrids that, at the margin, can play into performance (sometimes positively
and sometimes negatively, as the case may be), hybrids overall appear poised to do
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well as the global economies grind along at a slow pace. The sovereign markets have
led the way in July, recovering about 2/3rds of the ground they gave up in May and
June. As deflation continues to challenge policy makers, its backdrop should continue
to foster a positive “cushion-like” performance expectation for hybrids and preferred
securities this year even if the Fed does raise rates like it says it will by yearend.
Review of August’s Investment Environment (p0p1 +0.07%; c0cs -1.42%):
The performance backdrop in August was staged again by the transmission effects of
declining commodity prices, which are symptomatic of materially slower growth in
China. The flare that brought this risk to the headlines was the first devaluation in
China’s renminbi (RMB) in 21 years. In the US, Treasury bond prices marched steadily
upward through most of the month and during the week that followed the 3% RMB
devaluation, but then turned suddenly when China sold US Treasuries (more on this
later) after the S&P 500 cracked -- the yield on the UST30yr finished up 1bp at 2.94%.
The yield on the US Treasury 10yr note was unchanged at 2.21%. The S&P 500 sold off
by 6.03% and volatility spiked to a high not seen since 2011 when the Eurozone
sovereign debt trauma plagued the markets. The equity anxiety transmitted fear into
the broader bond markets. The junk market, measured by the Bank of America Merrill
Lynch High Yield Index (h0a0), declined 1.76% to yield 7.29% (up 38bps). Financial
credit (measured by Bank of America Merrill Lynch’s cf06 index) closed down 0.41% to
yield 3.77% (up 11bps). Investment grade corporates (measured by Bank of America
Merrill Lynch’s c7c0 index) declined 0.69% to yield 4.50% (up 10bps).
The total return of hybrid sector went in two different directions this month. The Fixed
Rate Preferred Securities Index (p0p1), which represents 70% of the retail $25 par
market and 30% selected $1,000 par securities that are eligible for the DividendReceived-Deduction, decreased by $0.51 (on a bond-adjusted basis) to close yielding
4.86% -- this yield was 8bps higher than last month and 7bps tighter on spread relative
to treasuries. The Bank of America Core Fixed Rate Preferred Securities Index (p0p2),
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which represents the core of the $25par market, decreased by $0.49 to close yielding
5.06% -- this was 9bps higher than last month and 11bps tighter on spread relative to
treasuries. The Bank of America Merrill Lynch US Capital Securities Index (c0cs), which
represents the broad institutional capital securities market, decreased by $2.07 to close
yielding 4.59% -- this was 26bps higher and 19bps wider on spread relative to
treasuries.

The institutional sector (measured by the c0cs index) declined by 1.42%


decreased by $1.18 and its average coupon was unchanged at 6.35% -- its blended
total return declined by 0.67% in August. The current yield of the benchmark rose by
7bps to 6.14% and widened by 6bps relative to comparable treasuries (+259bps). The
chart below reflects the year to date path of the combined hybrid benchmark (stb2),
which had been on a relatively accretive path compared to 10yr Treasury notes until this
summer’s flight-to-quality supported treasuries more than it hurt hybrids – the abrupt
sell-off in the Treasury bond market the last week of August has broader implications for
hybrids which is discussed later.
Page 8 of 22
After rebalancing, the core retail $25par sector (measured by p0p2) is 80bps cheaper
than the institutional $1,000 par sector (measured by c0cs) -- this is generally 44bps
more than average. The modified duration of the retail sector (9.1yrs) is 3.7yrs longer
than the modified duration of the institutional sector (5.4yrs) – this differential is 0.4yrs
longer than it was last month, which evidences some duration extension that is typical of
the declining optionality of the retail sector when prices decline. The chart below shows
the return paths of both sectors for the year:
Page 9 of 22
The notable drop in $25par prices came amidst the massive volatility in equity prices on
August 24th, which we commented on in our special report titled “World War “D” where
we discuss decelerating world growth and deflation risks:
“The implication of this expanding Great Moderation into a Greater (Global)
Moderation is for policymakers to keep making policy that only encourages
politicians to make more (and more) promises and print more (and more) fiat
currency to buy less (and less) growth with more (and more) debt. For the time
being, this should continue to prop up the share markets -- which adore central
bank interventions so much that they have been conditioned to expect it. We
saw only a brief pause in European equities last month due to Greece’s
brinksmanship and US equities celebrated the Fed’s own game of kick-the-can
as it delays the most talked about (merely symbolic) rate increase in a decade.
The Central Bank of China devaluing its currency and cutting rates (again this
morning) keeps supportive global monetary actions in place and share markets
satisfied. We expect this intervention process to further evolve and continue.
Last month we noted that there is growing financial friction in the global economy, which
is symptomatic of the decline in commodity prices, which in turn, is symptomatic of the
steady decline in China’s growth. The chart below of the Bloomberg Commodity Index
(BCOM) reminds us of the important global relevance of China and the correlation of its
GDP growth to commodity prices:
Page 10 of 22
We commented on the record fall in China’s foreign exchange reserves over the past
few months and that this should be a beacon that capital flows are moving out. We
postulated that like corporate insiders, investors inside China must know that something
is wrong and that internal excess needed to be further filtered and re-priced – the
surprise to the markets was China’s decision to re-price or devalue the RMB. This sent
massive shock waves through the share markets causing the S&P 500 to plummet and
its volatility index (VIX) to soar above 50 for its single biggest 1-day vault in its history.
Markets despise negative surprises, especially one that has a ghost that haunted
markets in 1994 when China devalued by 30%:
Page 11 of 22
This ultimately compelled other regional economies to devalue their currencies too
which ignited the Asian Currency Crisis three years later. Once markets and economies
adjusted, it set off an industrial revolution in China where its GDP growth (led by very
cheap exports) zoomed under the devalued peg:
Of course, after a long economic boom after Y2K, the world’s trading partners began to
complain, which compelled China to create a “managed float” in 2005 that gradually
allowed the “market” to appreciate its currency (e.g., the USD used to buy 8.0 RMB, but
it declined to buying 6.0 RMB by 2014). There was upside to the US (besides the
obvious disinflationary consumer benefits) in having cheap exports from China – the US
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has been able to sell more and more debt at higher and higher prices as China’s export
revenue gets recycled into a massive pool of foreign currency reserves to support the
RMB:
China has surpassed Japan as the largest holder of US Treasury securities holding over
$1.26 trillion (or $2.5 trillion between the 2 nations). For the benefit of the global
economy, China’s economic miracle has been a US fiscal spending enabler – both, in
partnership with the US Federal Reserve Bank (i.e., its $4.7 trillion balance sheet).
The Chinese authorities have stated that its RMB devaluation this month is a “one-time
fix”; and they have assured the other members of the G-20 that China will “refrain from
competitive devaluations to gain a trade advantage.” But leaving a currency “peg” is
generally no different than leaving a currency “gold standard” when sellers demand a
unit of the peg in exchange for the currency. Whether the peg is an ounce of gold or a
US dollar, the outcome is the same – the central bank has to sell (or deliver) its
reserves to “defend” (or honor) the exchange. When influenced by the powerful macro
backdrop of the “currency wars” that we have discussed over the months, the more
likely trend for the RMB is down given China’s desire for a free-market based exchange
rate, its slowing growth plane and desired RMB reserve currency status. China would
not be devaluing along this trend to necessarily “gain a trade advantage”, but rather it
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would be devaluing to satisfy the exchange demands of over 1 billion people able to
move capital around the world seeking higher investment returns. This reminds us
(albeit, a bit in extreme) of when Great Britain was forced to leave the gold standard in
the early 1930’s because investors sold pounds in exchange for gold under the logic of
trouble being afoot for its economic interests in Europe – eventually Great Britain ran
out of gold. China is seeing a somewhat similar internal situation of economic trouble
and demand for its peg (i.e., capital flight), but rather than the central bank delivering
gold, it has to deliver US dollars (among other currency perhaps). Indeed, the RMB
was for sale in August after the (surprise) devaluation and the Chinese authorities had
to sell its reserves to defend the desired bandwidth on its peg – a big part of the sold
reserves were German bunds and US long bonds. This was atypical of the “flight-toquality” that usually benefits the Treasury bond market when equity prices plummet.
The result was a sudden and significant drop in US long bond prices and a rise in the
value of the US dollar (and the Euro). The bottom line is that the transmission effects of
falling commodity prices and slower growth in China are beginning to push back against
the desired economic benefits of quantitative easing – which will likely lead to more
quantitative easing and continued bouts of volatility. It is becoming increasingly
possible that next year (after just 1 rate hike this year) the Fed starts to buy long bonds
again with a 4th round of quantitative easing to defend against rising risks of declining
growth.
The implication on the hybrid preferred markets (against the backdrop of choppy yet
persistently low longer term deflated UST yields) is for nominal hybrid yields to decline
and spreads to grind tighter and as quality investment yields become scarcer amidst the
friction of this the Greater (Global) Moderation paradigm. Hiccups along the way (such
as the case is now) foster buying opportunities in hybrids. For example, 10yr UST rates
are basically unchanged since the beginning of the year, but the volatility in the S&P
500 has preferred yields (4.59%) 15bps cheaper since January. We have warned that
volatility fits are likely as the global expansion matures and is prompted along by
Page 14 of 22
intermittent policymaking. But rather than sell hybrids when prices misbehave, we
continue to believe that investors will be well served to buy the dips as supplemental
income opportunities are likely to grow scarcer and scarcer as the global battles against
deflation persist for some time yet.
Review of September’s Investment Environment (p0p1 +0.03%; c0cs +0.08%):
The performance backdrop to hybrids in September was complicated by the indecision
by the Fed and the macro concerns that led to a cascade in high yield market. US
Treasury bond prices rallied this month to recover just about all the sector’s losses from
last month’s selling by the Central Bank of China, primarily. The UST30yr bond finished
6bps lower at 2.88%. The US Treasury 10yr note yield declined by 14bps to 2.06%.
The S&P 500 lost 2.47%, but volatility declined in the process. Much of the anxiety in
the energy sector caused the high yield market find a new low for the year. The junk
market, measured by the Bank of America Merrill Lynch High Yield Index (h0a0),
declined 2.59% to yield 8.08% (up 78bps). Financial credit (measured by Bank of
America Merrill Lynch’s cf06 index) closed up 0.82% to yield 3.63% (down 11bps).
Investment grade corporates (measured by Bank of America Merrill Lynch’s c7c0 index)
rose 0.57% to yield 4.49% (down 6bps).
The total return of the general hybrid sector was certainly aided by the coupon this
month as prices faded a bit, but not enough to offset income. The Fixed Rate Preferred
Securities Index (p0p1), which represents 70% of the retail $25 par market and 30%
selected $1,000 par securities that are eligible for the Dividend-Received-Deduction,
decreased by $0.53 (on a bond-adjusted basis) to close yielding 5.04% -- this yield was
15bps higher than last month and 33bps wider on spread relative to treasuries. The
Bank of America Core Fixed Rate Preferred Securities Index (p0p2), which represents
the core of the $25par market, decreased by $0.49 to close yielding 5.31% -- this was
21bps higher than last month and 42bps wider on spread relative to treasuries. The
Bank of America Merrill Lynch US Capital Securities Index (c0cs), which represents the
Page 15 of 22
broad institutional capital securities market, decreased by $0.46 to close yielding 4.31%
-- this was 1bps higher and 10bps wider on spread relative to treasuries. Please note
that the index yields reflect only the monthly changes and that rebalancing can change
the index yield to start the new month.

The institutional sector (measured by the c0cs index) rose by 0.08%


decreased by $0.51 against an average coupon of 6.38% -- its blended total return
improved by 0.05% in September. The current yield of the benchmark rose by 3bps to
6.17%. The benchmark’s yield-to-worst (YTW) closed at 4.67 for a spread of +261bps
of comparable treasuries (21bps wider than last month). The chart below reflects the
year to date path of the combined hybrid benchmark (stb2), which had been on a
relatively accretive path compared to 10yr Treasury notes. The treasury market has
had about a 6.5% return range so far this year while the hybrid sector has had a 4%
range. Treasuries spent a little time underwater this summer, but have since rallied to
come back to meet the total return of the hybrid market which has spent all of 2015 in
positive territory.
Page 16 of 22
After rebalancing, the core retail $25par sector (measured by p0p2) is 96bps cheaper
than the institutional $1,000 par sector (measured by c0cs) -- this is generally 60bps
more than average. The modified duration of the retail sector (8.8yrs) is 3.3yrs longer
than the modified duration of the institutional sector (5.5yrs) – this differential is 0.4yrs
shorter than it was last month, which evidences some duration contraction in the $25par
market this month.
The chart below highlights the investment grade capital securities sector (c0cs) and the
contingent convertible (coco) sector::
Page 17 of 22
The capital securities sector came under pressure from 2 areas: 1) the legacy enhanced
equity step-up capital securities of the insurance sector and 2) the contingent
convertible (coco) sector. The step-up sector underperformance in certain insurance
names is a function of insurance managements taking aggressive advantage of the US
corporate tax law, in our opinion, by swapping out the floating rate payments coming up
soon for fixed rate payments and in doing so, extending another 20 years of equity
credit from S&P that are tax deductible. These actions have forced prices to decline to
relatively steep discounts, which create a rather unique buying opportunity – here we
would expect prices to rise if rates rise. On the CoCo side, the sector has been under
pressure since June, basically performing in sympathy with a choppy and volatile
banking equity sector. CoCos have also suffered from some selling out of high yield
accounts as this sector has been under enormous pressure over the past few months
(many high yield funds own CoCos as an alpha allocation to the their traditional
mandates).
On a broader basis, performance suppressed this month by the overhang of uncertainty
from the US Fed, more global growth uncertainty and commensurate volatility. We
commented last month on volatility in special report titled “World War “D” (the “D” stands
for deflation) where we said:
“We have warned that volatility fits are likely as the global expansion matures
and is prompted along by intermittent policymaking. But rather than sell hybrids
when prices misbehave, we continue to believe that investors will be well served
to buy the dips as supplemental income opportunities are likely to grow scarcer
and scarcer as the global battles against deflation persist for some time yet.”
The markets were under a spell of great rates anticipation in September. Indeed,
conflicting opinions over what the Fed will do on rates and how its rationale will read has
been a toilsome game of “cat & mouse” all year long. The Fed inserted new language
into its July minutes (disclosed this month) to talk about the pressure on inflation:
Page 18 of 22
Recent global economic and financial developments may restrain economic
activity somewhat and are likely to put further downward pressure on inflation in
the near term…The Committee continues to see the risks to the outlook for
economic activity and the labor market as nearly balanced but is monitoring
developments abroad.
The “downward pressure on inflation” is Fed-speak for deflation – when the air runs out
of your car’s tire, do you say that there is downward pressure on inflation or that your
tire is deflating? Slowing growth around the world and the beginning sparks of financial
friction stemming from the commodity slump are compelling the Fed governors to be
more dovish. The compression in the Fed’s DOT report pictures story of a Committee
slowly conceding its elevated expectations.
Page 19 of 22
The Fed expects inflation (measures by the PCE; graphed below) “to remain near its
recent low level in the near term, but the Committee expects inflation to rise gradually
toward 2% over the medium term as the labor market improves further and the
transitory effects declines in energy and import prices dissipate.”
Interestingly, when referring to the declines in energy, the word “earlier” was struck
which implies that the Fed believes that energy prices are apt to stay low or go even
lower. The Committee now appears to recognize that declines in commodity prices and
the risks to the US economy cannot be referred to in the past tense, but rather, these
risks are ongoing.
The implications to the hybrid preferred markets are consistent with what we have been
discussing throughout the year – contained rates risk, periods of volatility and demand
for hybrid yield persisting. There is an increasing amount of friction playing into the
global economy as the Greater (Global) Moderation becomes entrenched. More central
bank intervention (or delayed rates normalization) is likely to create more volatility risks
along the way. By the end of the September, the volatility in the S&P 500 has pushed
preferred yields 23bps higher (to 4.67%) since January, even though the UST10yr note
Page 20 of 22
yield is 11bps lower (from 2.17%). We have warned that volatility fits are likely as the
global expansion matures and global currency wars persist. But, rather than sell
hybrids when prices decline, we continue to believe that investors will be well served to
buy the dips as supplemental income opportunities are likely to grow scarcer and
scarcer as the global battles against deflation persists.
Phil Jacoby
CIO, Spectrum Asset Management
October 9, 2015
Addendum:
IPO notables in July:
1. JP Morgan Chase (Baa3/BBB-/BBB) issued $1.15 billion of $25par noncumulative 6.15% fixed rate AT1 perpetual preferred stock
2. Charles Schwab Corp (Baa2/BBB/BBB) issued $600 million of $25par noncumulative 6.00% fixed rate AT1 perpetual preferred stock
Page 21 of 22
IPO notables in August:
1. Southern California Edison (Baa1/BBB-/BBB+) issued $375 million of $25par
non-cumulative 5.375% 10yr fixed-to-floating rate perpetual preferred stock
2. Capital One Financial (Baa3/BB/BB) issued $500 million of $25par noncumulative 6.20% fixed rate AT1 perpetual preferred stock
3. Digital Realty Trust (Baa3/nr/BB+) issued $250 million of $25par cumulative
6.35% fixed rate perpetual preferred stock
4. Dairy Farmers (Baa3/nr/nr) issued $75 million of $100par non-cumulative 7.00%
fixed rate perpetual preferred stock
5. UBS Group (nr/BB/BB+) issued $1.575 billion of 6.875% 10yr fixed-to-floating
rate contingent convertible AT1 perpetual jr. sub debt
6. RBS Group (nr/B/BB-) issued $2.0 billion of 7.5% 5yr fixed-to-floating rate
contingent convertible AT1 perpetual jr. sub debt
7. RBS Group (nr/B/BB-) issued $1.15 billion of 8.0% 10yr fixed-to-floating rate
8. BNP (Ba1/BB+/BBB-) issued $1.5 billion of 7.375% 10yr fixed-to-floating rate
IPO notables in September:
1. Qwest Corp (Baa3/nr/BBB-) issued $410 million of $25par sr. secured 6.625%
fixed rate baby bonds due 9/15/2055
2. Wells Fargo (Baa2/BBB/BBB) issued $1 billion of $25par non-cumulative 6.0%
fixed rate AT1 perpetual preferred stock
3. Societe’ Generale’ (Ba2/BB+/nr) issued $1.25 billion of contingent convertible
AT1 8% 10yr fixed-to-variable perpetual jr. subordinated debt
4. Intesa SanPaolo (Ba3/B+/BB-) issued $1.0 billion of contingent convertible AT1
7.7% 10yr fixed-to-variable perpetual jr. subordinated debt
Spectrum Asset Management, Inc. is a leading manager of institutional and retail preferred securities
portfolios. A member of the Principal Financial Group® since 2001, Spectrum manages institutional
portfolios for an international universe of corporate, insurance and endowment clients, mutual funds
distributed by Principal Funds Distributor, Inc., and preferred securities separately managed account
solutions distributed by Principal Global Investors, Inc.
Page 22 of 22

Preferred Securities Market Commentary

Transcription

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