Key Facts
• Preferred stock market is shrinking despite strong investor demand.
• Capital One redeemed $500 million in preferred stock this week.
• U.S. banks, including JPMorgan Chase, are retreating from the preferred stock market.
• Preferred stock market may shrink for the second consecutive year.
• Top 10 preferred stock funds saw over 10% asset growth year-to-date.
• Basel III capital regulations in the U.S. are being eased, reducing banks’ reliance on preferred stock.
• Hybrid bonds, offering higher repayment priority than preferred stock, are gaining popularity.
• Moody’s rating methodology change in early 2024 boosted hybrid bond issuance.
• U.S. non-financial firms issued $30 billion in hybrid bonds last year, with $10 billion issued in 2025 so far.
• AI-related infrastructure investments are driving hybrid bond issuance by utility companies.
Summary
The U.S. preferred stock market is contracting as banks like JPMorgan Chase and Capital One reduce issuance, driven by eased Basel III regulations and high dividend costs. Despite this, investor demand for high-yield assets remains strong, with preferred stock funds seeing significant growth. Meanwhile, hybrid bonds are emerging as a favored alternative for non-financial firms, offering higher repayment priority and benefiting from Moody’s 2024 rating changes. Utility companies are increasingly issuing hybrid bonds to fund AI-related infrastructure projects, with issuance volumes surpassing repayments. This shift highlights the evolving dynamics of capital markets.
