Preferreds weaken late in the day; fund rebalance credited; Wells Fargo's new issue gains

By Stephanie N. Rotondo

Phoenix, July 18 - Treasuries were slipping as Federal Reserve chairman Ben Bernanke testified before a House committee on Thursday, but the preferred stock world was holding up as of midday.

Bernanke's testimony was in regards to the Fed's monetary policy. One of the topics he covered was what caused a recent gain in the long bond's yield. He said the uptick was due to improved economic data, the unwinding of risky positions and a change in how the market is interpreting the Fed's policies.

Despite the early strength, a market source said the preferred arena lost ground in the final minutes of trading.

He attributed the last-minute dip to a rebalancing of the iShares S&P Preferred Stock Index Fund (NYSE: PFF), which is set to occur upon Friday's close.

"There's always a lot of trading in advance [of the rebalance] and sometimes you get some bizarre moves," the source said.

A trader said Wells Fargo & Co.'s new $1.5 billion issue of 5.85% series Q class A fixed-to-floating rate noncumulative preferreds had its greenshoe exercised, adding another $225 million, or 9 million shares, to the total issuance.

He saw the paper rising to $25.30 bid, $25.35 offered at midday.

Another market source said the issue was again topping the day's most-active list and gaining 9 cents in the process to close at $25.28.

The deal came Monday, ending a weeks-long drought in the new issue market. The securities freed to trade on Tuesday and have been on the rise ever since.

From Tuesday business, Farm Credit Bank of Texas' Rule144A offering of $300 million 6.75% $100-par fixed-to-floating rate class B series 2 noncumulative perpetual preferreds were seeing "very little trading," according to a source. However, of the trades that were taking place, they were occurring above par, the source said.

Rebalance in the works

Several unusual issues were trading heavily on Thursday, and a source opined that the action was due to the rebalancing of the iShares S&P Preferred Stock Index Fund that is scheduled for Friday's close.

"People are either selling to make room or buying so they don't have a mismatch," he said.

US Bancorp's 5.15% series H noncumulative perpetual preferreds (NYSE: USBPO) were busy, but flat at $23.68.

Public Storage's 5.9% series S cumulative preferreds (NYSE: PSAPS) were also active, dropping a dime to $24.58.

Duke Realty Corp.'s 6.5% series K cumulative preferreds (NYSE: DREPK) meantime put on 8 cents, closing at $25.11.

And, National Retail Properties Inc.'s 6.625% series D cumulative redeemable preferreds (NYSE: NNNPD) earned a nickel, finishing the day at $25.20.

A call to BlackRock - the firm that manages the iShares fund - was not returned on Thursday.

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