A fixed-income security (investment) that bears certain equity-like features. It is mainly issued by large banks and insurance firms. Preferred securities, also known as “preferreds” or “hybrids,” have the characteristics of both stocks and bonds, and can potentially provide investors with enhanced yields compared to common stock or corporate bonds.

Preferred securities often have very long maturities (more than 40 years) or are perpetual and many are embedded with five-year call options giving the issuer has the right to redeem the securities after the passage of the call period. These securities are also subordinate to debt securities but rank ahead of common stock in the corporate structure. Notwithstanding the certain restrictions, these securities provide the opportunity for a higher income.

Most preferreds are listed on organized exchanges (very much similar to stocks). However, and similar to bonds, preferreds usually have credit ratings, and hence are subject to credit upgrades and downgrades which impact their pricing in the secondary market.