Extension Risk for US Bank Preferred Securities

Fed’s 300 basis point rate hike this year has sent shock waves across the global stock and bond markets. Wall Street banks recently warned of revenue contraction amid the weakening market environment. However, US banks’ balance sheets remain strong, which could be attributed to higher capitalization following the global financial crisis (2007–08). In the backdrop of sticky inflation and expectations of “higher for longer” interest rates, we see extension risk rising for preferred securities issued by US banks. This report focuses on the factors driving extension risk and highlights the preferreds that are most at risk.