Preferred stock investors are accepting more investment risk to receive the same dividend reward when compared to last January. Using Moody's ratings as a proxy for investment risk, preferred stock investors have become more risk-tolerant this year.
Using current yield as a measure of reward, investors are accepting 6.15% at the lowest Moody's investment grade level of Baa3. At the end of January 2013, these investors were demanding a 6.43% return at this same level of risk. The huge May spreads that we see at any given Moody's rating are being caused by the fact that Moody's and preferred stock investors are defining risk two different ways...
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Using current yield as a measure of reward, investors are accepting 6.15% at the lowest Moody's investment grade level of Baa3. At the end of January 2013, these investors were demanding a 6.43% return at this same level of risk. The huge May spreads that we see at any given Moody's rating are being caused by the fact that Moody's and preferred stock investors are defining risk two different ways...
Note To Readers:This article was chosen to appear on the popular investing website 'Seeking Alpha'.
By clicking here a new window/tab will open on your screen to this article as it appears at SeekingAlpha.com.
Receive my Seeking Alpha articles by email: When viewing one of my articles at Seeking Alpha, click on the "Follow" button under my picture. You will be notified by email when I post a new article to Seeking Alpha.
Please enjoy reading this article at Seeking Alpha.
Many Happy Returns.
