JPMorgan Chase Drives Momentum in Preferred Shares Market with High Coupon Issue
Key Points:
* JPMorgan Chase & Co. issued a $3 billion preferred share offering with a 6.5% coupon.
* High coupons attract investors amidst compressed risk premiums and low interest rates.
* US bank preferreds and European AT1 bonds gain popularity for their high yields and regulatory compliance.
Market Dynamics:
JPMorgan's preferred share issuance ignited market activity, becoming the most traded corporate bond and preferred security during the week. The high coupon attracted prospective buyers, including owners of older securities with lower coupons.
Benefits for Banks:
Preferred shares enable banks to manage their capital costs. JPMorgan's new issue replaced an older 4.6% coupon security, saving the bank from higher borrowing costs associated with extending the previous bond.
Industry Trends:
Other banks have followed suit, issuing preferred shares with higher coupons. Citigroup's recent $1.5 billion offering carried a 6.75% coupon, while Goldman Sachs' latest issue had a 6.85% coupon.
Investor Demand:
US investors prefer high-coupon issues, seeking income generation in a low-yield environment. Preferred shares offer a guaranteed source of income if the issuer does not default.
Conclusion:
High coupon preferred shares remain in demand as investors seek income amid low interest rates. Banks are leveraging this trend to manage capital costs and meet regulatory requirements.