Preferreds 'tank' as Fed minutes indicate tapering on the table; Maiden notes decline

By Stephanie N. Rotondo

Phoenix, Nov. 20 - Preferred stocks began the midweek trading session with a weaker tone but were trying to edge back up by midday. Then, late in the afternoon, minutes from the last Fed meeting were released, and the preferred market "tanked," according to one market source.

At midday, the Wells Fargo Hybrid and Preferred Securities index was down 1 basis point. Just an hour prior, it had been off 9 bps. By day's end, the Wells Fargo index was down 25 bps.

At a conference in Washington, D.C., Ben Bernanke, the chairman of the Federal Reserve, told a group of economists that he expected interest rates to stay low even after the central bank had cut its bond repurchase program. A trader said he expected that news to have some sort of impact on the world of preferreds but that he had yet to see any signs of real movement.

Later, preferreds headed lower.

According to the most recent minutes from the Fed, quantitative easing could begin to taper in the coming months, even if the job market remains subdued.

If the Fed did decide to begin the taper, it would be making a dramatic policy change, and that could take a toll on markets.

In the primary space, Maiden Holdings North America Ltd.'s $152.5 million issue of 7.75% $25-par fixed-rate notes due 2043 - a deal that came Monday - "sold off pretty strongly" in early trading, according to a trader.

He saw the notes trading in a range of $24.45 to $24.52.

The paper had traded in the gray market around par, but came in post-pricing and after the deal had freed to trade on Tuesday. The trader said he was not sure what was causing the notes to decline so much come Wednesday.

After the close, a source deemed the issue down 40 cents at $24.60.

"It bounced around," he said of the notes' performance. He speculated that the volume weighted average price "could be even lower."

Discover pushes past 7% yield

Discover Financial Services Inc.'s 6.5% series B noncumulative preferred shares (NYSE: DFSPB) dominated overall trading in the preferred space on Wednesday.

Nearly 1.08 million shares changed hands during the trading day.

The issue fell 3 cents to $23.21, bringing the yield up to over 7%. Most financial preferreds trade with a 5% to 6% yield.

Discover is a Riverwoods, Ill.-based financial institution.

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