Investing in Preferreds
Most new-issue preferreds come with five year call protection, meaning the issuing corporation cannot call your preferred away from you for a full five years. After five years, it’s open season. If interest rates have declined and the price of preferreds has risen, you can expect a call. Issuing corporations will want to replace older, higher-yielding preferreds with new lower-yielding preferreds. During the five year period, the typical preferred will go up in value around the third year and then begin to decline. Therefore in an environment of stable of decreasing interest rates, you will always get this peak and roll process.