Trader says Greece, future Fed rate hike weigh on liquidity; AmTrust issue ‘trading strong’

By Stephanie N. Rotondo

Phoenix, June 24 – Preferred stocks ticked higher in midweek trading despite concerns that a Greece deal was farther off than previously hoped.

In earlier trading, the secondary was “flat for the most part” as the primary remained muted, a trader reported.

The Wells Fargo Hybrid and Preferred Securities index closed up 15 basis points. The index was up 4 bps at mid-morning.

The preferred space has been dealing with a low-volatility environment for weeks now, and one trader indicated that the lack of movement was not a big surprise.

“There’s a lot of reasons to sit back and wait,” he said. For one, it is summertime, a period that does tend to see more limited liquidity. But liquidity is being further constrained by the ongoing Greece debacle as well as a looming interest rate hike from the Federal Reserve.

“People don’t want to commit a lot of capital into fixed income going into the interest rate hike,” the trader said. Conversely, “people don’t want to go to short either.”

The trader also remarked that the Fed has done a good job of trying to keep the market stable as it moves toward “a more normalized rate,” given that the central bank likely wants to avoid another “taper tantrum.”

Most of the issues currently playing out in the market – Greece, the Fed and so on – are already priced in, the trader said. That also limits movement. But what isn’t priced in, he speculated, is a “ratcheting” of the Fed’s pace on any rate hikes. Though many are predicting two rate hikes this year – one in September and one in December – they haven’t accounted for further increases past that point.

Recent deal tidbits

Among recently priced issues, a trader said AmTrust Financial Services Inc.’s 7.25% $25-par junior subordinated notes due 2055, a $150 million deal that priced June 11, “have been trading strong,” seeing paper around $24.95 early in the day.

“There’s been a relatively inexhaustible bid,” the trader noted.

By the end of business, the paper, which listed on the New York Stock Exchange on Monday under the symbol “AFSS,” had moved up to par, a gain of 6 cents on the day.

Meanwhile, Valley National Bancorp’s $115 million of 6.25% series A fixed-to-floating-rate noncumulative perpetual preferred stock closed off 4 cents at $24.95.

However, that was up from opening levels of $24.92.

“There’s not a lot of action in that one,” a trader said. He added that the shares had been “hanging around” a $24.90 to $24.95 context.

The issue priced June 16.

From the current week’s business, Wintrust Financial Corp.’s $125 million of 6.25% series D fixed-to-floating-rate noncumulative preferreds were trading “a little weak,” a trader said, pegging the issue at $24.65.

“There seems to be support there,” the trader noted. “I thought they priced the deal somewhat aggressively compared to some over-the-counter fixed-to-float issues.”

Another market source saw the shares at $24.68.

The deal came Monday.

REITs get busy

Real estate investment trusts were getting a fair bit of play in midweek trading, though there was no news to spur the activity.

Kimco Realty Corp.’s 5.625% class K cumulative redeemable preferreds (NYSE: KIMPK) fell 9 cents to $24.51 on Wednesday. The 6% class I cumulative redeemable preferreds (NYSE: KIMPI) had dropped 20 cents in the previous session following the company’s presentation at the Jefferies 2015 Global Consumer Conference in Nantucket.

DDR Corp. was also on the active side. Its 6.5% class J cumulative redeemable preferreds (NYSE: DDRPJ) rose a penny to $25.72. The 6.25% class K cumulative redeemable preferreds (NYSE: DDRPK) improved 2 cents to $25.52.

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