Top of Morning: Preferred Securities - Performance update & outlook
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Frank Sileo, Senior Fixed Income Strategist Americas, rejoins the podcast for a performance update and outlook for the preferred securities sector. We also spend time reviewing positioning considerations within the asset class and provide a “preferred securities investing 101”. H
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4 itemsTalking Markets Podcast Series (Preferreds) with Bob Giangregorio (Spectrum) & Frank Sileo (UBS CIO)
The UBS podcast with Spectrum's Bob Giangregorio frames the preferred securities market as a 'coupon clipping' environment for 2026, with mid-single-digit return expectations driven by yields around 6-6.5%. Yields have risen in lockstep with Treasuries, keeping relative value range-bound. No FX pair is directly cited, but the commentary implies that a stable-to-higher rate backdrop supports preferreds, which could correlate with USD strength or risk-off flows. The desk's base case is constructive but unremarkable, rejecting a bullish breakout scenario.
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The desk's thesis emphasizes an optimistic outlook for preferred securities, pressing on the theme that valuations have been the primary constraint to achieving superior returns. Per the full note from UBS, preferreds in 2025 have shown returns of approximately 6% with retail-exchange-listed securities yielding around 3.6% and institutional variable-rate securities achieving about 8.3%. While current expectations mirror those of the previous year as the market adjusts, the strategic retreat of investors from overly optimistic positions suggests that preferred securities could rebound. This perspective keeps in line with the cautious positioning observed in the fixed-income landscape amidst tightening monetary policies.