The preferred stock market has been riding high on the insatiable chase for yield by global investors. They appear tightly buttoned and quite stable on most trading days. But it’s true identity should not be forgotten, as it remains a close brother to the high yield bond market. More dignified and less dazzling than its headline grabbing and sometimes flawed counterpart, the preferred stock market is still wired in many of the same ways. And with the high yield bond market coping with a toxic mix of already tight credit spreads, rising default rates and plunging oil prices, preferred stock investors should not expect to go unaffected if the high yield bond market takes a sudden fall.
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