In the biggest smack down of preferred stocks and baby bonds in the last number of months the high quality, low coupon shares are really getting spanked.
As we mentioned last night in the Monday Morning Kickoff we were watching the 10 year treasury for a breach of 2.68/2.69% and for a move above 2.70% on the way to 2.80%. The market strongly breached this level and is holding in the 2.70-2.71% area.
A good proxy for the high quality preferreds is REIT Public Storage (NYSE:PSA) serves to show what happens to these shares as interest rates rise.
Looking at this chart you can see the dislike for these shares–
Looking at a high quality, low coupon baby bond (Entergy Texas) the pattern is relatively less pronounced–not good, but less of a fall. Baby bonds many times have long dated maturities (in this case 2066), but long dated trumps perpetual.
We hope holders of quality issues are in the shares for the safe income as they have seen some capital evaporate.
We would suggest not buying any more of these until rates move higher–at least 2.80% to 3% as these levels are most assuredly are going to be reached.
Compare the above charts to the TERM PREFERRED from Gladstone Land (NASDAQ:LAND)