UBS On-Air: Market Moves Top of the Morning: Preferred yields not wilting in the market heat
Aug 7, 2025
Frank Sileo, Senior Fixed Income Strategist at UBS, discusses the intriguing landscape of preferred securities. He highlights the underperformance of this market and suggests it's an opportunistic moment for investors. The talk delves into subsector diversification, comparing $25 and $1,000 par preferred stocks and their varying risks and rewards. Additionally, Frank explores the evolving dynamics of preferred securities, revealing new opportunities as the market shifts away from traditional bank issuers, all while offering insights from UBS's latest investment resources.
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Preferreds Yield Strong Relative Value
- Preferred securities yielded modest returns in 1H 2025 due to relatively low yield premiums at the year's start.
- However, preferreds now offer better relative yields compared to other credit sectors with lower yields.
Subsector Diversification Effects
- $25 par preferreds tend to be more volatile and correlated with the S&P 500 compared to $1,000 par preferreds.
- Including $1,000 par preferreds can improve risk-adjusted returns by reducing exposure to equity-market correlations.
Preferred Sector Evolution
- The preferred sector is evolving with more non-bank issuers like utilities and insurers entering the market.
- This broadens the opportunity set and strengthens technical support for preferreds moving forward.