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Morning Commentary: Preferred stocks drop on Brexit vote, though up from early lows; banks retreat
By Stephanie N. Rotondo
Seattle, June 24 – The preferred stock market was tumbling early Friday on news the United Kingdom had voted to leave the European Union.
The outcome took the markets by surprise, as most had placed odds that the country would opt to stay in the E.U. As such, U.S. equities were off about 3% at the open, though they managed to pare those losses by mid-morning.
The same was true for the preferred space. The Wells Fargo Securities index was down 57 basis points at mid-morning, though it was down at least three times as much at the open.
“Things are selling off because of the Brexit,” a trader said. However, he noted that higher-yield issues were “holding in.”
“It’s not the sell-off we were hoping for; it’s more of an annoyance,” he said.
The trader also pointed out that the implications of the vote were “yet to be known.” Would other countries follow in the U.K.’s footsteps and, if so, who would end up holding all of the E.U.’s combined debt?
Domestically, there could be an upside, he speculated.
“The good news is that it will slow down the Fed’s rate-raising move,” the trader said. That in turn would be “good for housing, good for fixed income.”
While the preferred space was trading off, it was doing so amid limited liquidity. The bulk of early trading was centered on European banks, however.
Deutsche Bank AG’s 7.6% trust preferred securities (NYSE: DTK) were down 37 cents, or 1.43%, at $25.42. Barclays Bank plc’s 8.125% series 5 noncumulative callable dollar preference shares (NYSE: BCSPD) were off 34 cents, or 1.31%, at $25.70.
In HSBC Holdings plc’s 8% exchangeable perpetual subordinated capital securities (NYSE: HSEB), those were down 17 cents at $26.16. Royal Bank of Scotland Group plc’s 7.25% series T noncumulative dollar preference shares (NYSE: RBSPT) were down a similar amount at $25.27.
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