Morning Commentary: Preferreds come in after Fed meeting; Deutsche issues decline

By Stephanie N. Rotondo

Seattle, Oct. 29 – The preferred stock market was contracting a bit early Thursday, the one day after the Federal Reserve indicated it might increase interest rates in December, a trader said.

The Wells Fargo Hybrid and Preferred Securities Index was off 9 basis points at mid-morning.

At the conclusion of its two-day policy meeting on Wednesday, the central bank held rates steady for the time being but hinted that a hike could come in December, assuming unemployment stays low and a 2% inflation target is hit.

Still, a trader said the news resulted in only a “slight sell-off.”

Deutsche Bank AG preferreds were under pressure, as the German bank announced that it would cut over 30,000 jobs in the next two years and would also exit operations in 10 countries.

That news came along with the company’s earnings release, which showed a slightly narrower-than-expected loss of €6 billion.

Additionally, the bank said it was cutting its common stock dividends through 2016. A trader remarked that only the common would be impacted by that, though the contingent convertible issues – or the Cocos, as they are called – “could come in because they are the next line of defense.”

As for the preferreds, the trader said the paper was coming in but noted that most of the issues were trading at a premium.

“I’m not seeing any fear trading yet,” he said.

The 7.6% trust preferred securities (NYSE: DTK) were off 31 cents, or 1.13%, early in the session, trading at $27.05. The 8.05% TruPs (NYSE: DKT) were down 44 cents, or 1.55%, at $27.90.

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