U.S. Preferred securities continue to provide healthy returns for investors. The S&P U.S. Preferred Stock Index has returned 0.79% for the month and currently returned 13.81% total return year-to-date.
The ratings break-out between constituents of the preferred index has the S&P U.S. Investment Grade Preferred Stock Index even with its high yield counterparts at 0.83% on the month. A current trend of risk-off from junk is reflected in the indices as the investment grades have returned 16.40% year-to-date. High Yield as measured by the S&P U.S. High Yield Preferred Stock Index has returned 0.84% so far for the month and 12.69% year-to-date.
Like Preferreds, the difference in yield between the S&P U.S. Issued Investment Grade Corporate Bond Index and the S&P U.S. Issued High Yield Corporate Bond Index is 2.97% (5.87% vs 2.90%), up from a 1.97% back at the end of June. The prevailing thinking is that given the different risk profiles between the asset classes, the recent level of reward (yield) does not compensate in the current economy. Year-to-date the S&P U.S. Issued Investment Grade Corporate Bond Index has returned 6.65% of total return while the S&P U.S. Issued High Yield Corporate Bond Index has returned 4.38%.
The risk-off trend could continue for some time depending on market participant’s credit outlook in our current economic environment. Recently announced and related to this trend was news from Standard & Poor’s Ratings group expecting the U.S. corporate trailing-12-month speculative-grade default rate to rise to 2.4% by September 30, 2015 from 1.6% in September, 2014.
Source: S&P Dow Jones Indices, data as of November 14, 2014