Preferred Shares

A Challenging Environment

July 14, 2015

The main driver affecting the performance of the rate reset securities, which comprises the majority of the Index, has been the low interest rate environment as the 5-year Government of Canada bond yield acts as a base rate when rate reset securities adjust their dividend rate. Hence, the low rate environment has put price pressure on this type of security.

Additionally, there seems to be a misconception that a rising interest rate environment will negatively impact the prices of rate resets, when in reality the opposite is true and higher underlying yields will be beneficial for the price of both rate reset and floating rate preferred shares.

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