What to make of floating-rate preferreds ?
Share prices have moved up significantly lately for AEB, GS-pD, MS-pA and SAN-pB, to name a few. These all have a coupon of the higher of 4% or some percentage (less than 1%) plus 3-month LIBOR, currently @0.31%.
In order for the coupons to increase for these shares, LIBOR would have to increase to >3%, something like a 10-fold increase. Have these floaters simply gotten ahead of themselves or is the market telling me something ? Will this trend continue? Or, with most fixed-rate preferreds trading above par, are income seekers piling into floaters in anticipation of higher distributions which will be some time in coming ? Or have financials turned the corner and their obligations now seen as higher in quality ? If this is the case, this rally might still have some legs.
BTW, a participation loan fund I own (primarily secured, very short-term, less than investment grade loans) did just increase its distribution. |
