Same Price Patterns Playing Out?

Time and time again we see preferred stock and baby bond prices play out in the same fashion.

Rates rise–quality issues tumble hard–rates stabilize–and prices start to move higher and creep slowly higher until rates move again (higher or lower).

For the nimble folks (of which I am not one) this is a great potential trading opportunity. For us that are not so nimble (by design) it is just a chance to add some high quality issues at decent prices.

Here is a chart of CMS Energy 4.20% perpetual preferred (CMS-C)–rated split investment grade–BBB- and Ba1. What a ride–started the year right at about $25, fell to $17.50ish, rose to $21 and now has fallen to $17.35 for a current yield of about 6%.

So now as rates have moved higher once again into the 3.30% area we will see if they will stabilize giving breathing room to the higher quality, low coupon issues to move higher once again–although we have a new factor for September–QT (quantitative tightening). Will rates stabilize or will the draining of more liquidity by the Fed push rates even higher?

3 thoughts on “Same Price Patterns Playing Out?”

  1. Trading in a rising rate scenario can be profitable, but also perilous. You better be willing to hold your purchases long term. When everyone (especially big institutions) wants out and just hit bids indiscriminately, prices can fall out of bed in a NY second. Short term trading works until it doesn’t. Then, it’s Katie bar the door. At least, that’s my experience.

  2. Not nimble at trading…but have grabbed some of these buying opportunities. For perpetuals, ave been very happy to get BAC-B, double IG, at par with its 6% coupon. And great one i was alerted to by you tim is peb-f, which i’ve averaged into for a 7.4% yield. so as chaotic as things are right now, there are opportunities for buy and hold investors, IMO

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