Preferred Stock Strategy 9 August Non-cumulative preferred issuance picks up

Preferred Stock Strategy -

August 9: The following is a summary of UBS August Update to its Quarterly Preferred Stock Third Quarter Outlook

Prices well supported:
Preferred prices remained well supported last month, despite steadily
higher interest rates. The potential negative impact of higher bond
yields was offset by an improvement in credit conditions. Spreads on
our option-adjusted spread (OAS) index richened 30 bps since the
beginning of July and are back to five-year historical tights.

Non-cumulative preferred issuance picks up:
Last month, nearly half of the new supply came in the form of
non-cumulative preferreds, and this structure of the market represents
60% of this year's issuance. In our view, it is important for
investors to remain aware of the additional credit risk associated
with preferreds that have a non-cumulative dividend feature.

Auto industry update:
Although they have staged somewhat of a recovery, prices of auto
preferreds remain in negative territory. After reaching historical
lows in March and falling by as much as 25%, prices are down about 11%
since mid-March and about 15% since last year. The outlook for further
deterioration in credit fundamentals places these preferreds at risk
for further price erosion.