Preferred stocks rally after Fed decision; NuStar hits NYSE; Fannie, Freddie retreat again

By Stephanie N. Rotondo

Seattle, May 3 – The preferred stock market managed to post gains on Wednesday after the Federal Reserve opted to keep interest rates steady.

“I don’t think anyone I talk to was expecting a May increase,” a market source said. “Chatter makes a June hike or September hike more likely.”

While the move was largely expected, the market was unchanged to slightly lower earlier in the day.

The Wells Fargo Hybrid and Preferred Securities index ended the day up 25 basis points, after being flat at mid-morning. The U.S. iShares Preferred Stock ETF closed 10 bps higher.

Earlier, the ETF was down 8 bps.

The primary continued to be silent, though a trader said that could change in the “next week or so.”

The trader remarked that he was hearing the pipeline was starting to build up, mostly with master limited partnerships and business development companies.

As for the market’s more recent deals, they remained in play.

NuStar Energy LP’s $350 million of 7.625% series B fixed-to-floating rate cumulative redeemable perpetual preferred units listed on the New York Stock Exchange on Wednesday, as was expected.

The ticker is “NSPrB.”

The preferred units closed at $25.28. The paper was trading at $25.35 in early dealings, which compared to $25.43 at the open.

The deal priced April 25, coming upsized from $150 million. Price talk was initially 7.875% but was later revised to 7.625% to 7.75%.

Wells Fargo Securities LLC, BofA Merrill Lynch, Morgan Stanley & Co. LLC and UBS Securities LLC were the joint bookrunners.

Qwest Corp.’s 6.75% $25-par notes due 2057 (NYSE: CTDD) also remained busy and continued their climb above par.

The notes finished the session at $25.04.

Away from recent issues, a couple of other not-so-common issues were trading more actively than usual.

That included Bank of America Corp.’s 6.2% series CC noncumulative preferreds (NYSE: BACPrC), which rose 6 cents to $26.09.

The preferreds traded over 1.26 million times during the day, making it the second most active issue.

Deutsche Bank AG’s 6.55% trust preferred securities (NYSE: DXB) were also busier, but fell 3 cents to $25.21.

GSEs decline again

Activity in GSE-linked preferreds was picking up a little bit after being rather lackluster on Tuesday despite Freddie Mac reporting earnings.

But like Tuesday’s session, the preferreds remained in retreat.

“I guess some [people] woke up today and said ‘I will not wear those rose colored glasses anymore,’” a market source quipped.

Fannie Mae’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined 59 cents, or 8.31%, to $6.51. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) slid 65 cents, or 9.34%, to $6.31.

On Tuesday, Freddie reported a $2.2 billion profit – all of which will be paid forward to the Treasury as a dividend payment.

For its part, Fannie will report its first-quarter results on Friday.

But recent comments made by Treasury secretary Steven Mnuchin may be weighing on the GSEs.

On Monday, Mnuchin reiterated that reforming the GSEs was a top priority, with a plan expected to come forth later this year or early next.

But Mnuchin also said that he did not believe that the agencies’ dividend payments should be suspended, likely letting down advocates who say Fannie and Freddie should stop making such payments in order to build up a capital buffer.

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