Preferred stocks with a $25 par value, which trade on the New York Stock Exchange, have gained popularity but yield just 5% to 5.5% for major banks, a modest premium over the 30-year Treasury.
According to Nuveen portfolio manager Douglas Baker, economic resilience and an anticipated soft landing make bank-issued preferreds more appealing, despite limited issuance due to banks’ reduced need for capital. Issuers have redeemed more than they’ve issued this year, tightening supply in the $25-par market, which has seen a 13.1% gain year-to-date.
Baker points out that tax advantages, high yields, and stock-like trading add to preferreds' appeal. However, their perpetual nature and redemption rights limit price gains and increase sensitivity to rising rates.
Finsum: There is strong demand for these types of unusual but tax efficient investments in the wider market.
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