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In September, the preferred share market was negatively impacted by volatility in equity markets. Ongoing monetary tightening by the Bank of Canada, the U.S. Federal Reserve, and other central banks led to a selloff in common shares that was followed by preferred shares. The correlation between preferred shares and common equity has been quite high in recent months as the potential for deteriorating economic conditions has generated a risk-off environment. Traditional $25 par value preferred share values have also been hurt by recent new issues of institutional preferred shares and Limited Recourse Capital Notes (LRCNs) by Canadian banks. The banks have been shoring up their balance sheets in advance of some U.S. takeovers as well as preparing for potential economic slowing. The shift from traditional preferred shares (which make up the S&P/TSX index) to the new bank securities by some institutional investors has weakened the traditional preferred share market. The S&P/TSX Preferred Share index returned -6.88% in September. (more…)