Utility Hybrids Feb ‘26: Rel Val & Client Pushback
Andy DeVries, CFA - Head of Investment Grade, Head of Utilities, CreditSights
Nick Moglia, CFA - Senior Analyst, REITs, Utilities and Refiners, CreditSights
Diego Espinosa Valdez - Analyst, Utilities, CreditSights
2 February 2026
- How utility management teams are positioning hybrid optionality and what that means for bondholders.
- Why comparing hybrid yields to long bonds reveals a different risk-reward picture than traditional analysis.
- What extension risk actually costs investors and whether the compensation adequately reflects historical patterns.
- Which reset rate thresholds matter most when market spreads widen beyond certain key levels.
- How interest rate scenarios determine whether hybrids or straight bonds deliver better relative value going forward.
Analysts maintain favorable outlook on utility hybrids despite receiving questions from market participants. Credit quality expectations remain stable across the sector supporting capital structure positioning.
Investment rationale centers on compensation received for accepting certain refinancing timing uncertainties. Reset rate characteristics play crucial role in determining overall attractiveness of opportunities.
Management teams emphasize flexibility benefits these instruments provide regarding interest rate environments. However, calling decisions should depend entirely on prevailing market conditions at refinancing dates.
Alternative comparison methodology examines yield relationships differently than traditional spread-based analysis approaches. This perspective reveals materially different risk-reward dynamics for hybrid security investors.
Therefore, updated comparative frameworks will incorporate additional valuation perspectives moving forward. Historical spread behavior during various interest rate scenarios provides useful context.



