Morning Commentary: Preferred stocks continue to sink after election; Fannie, Freddie remain firm

By Stephanie N. Rotondo

Seattle, Nov. 14 – The preferred stock market remained in decline early Monday, following the trend set in the previous week in the wake of the U.S. presidential election.

The Wells Fargo Hybrid and Preferred Securities index was down 111 basis points at mid-morning.

Preferreds have weakened significantly in the last week as Donald Trump’s win came as a surprise. One trader commented that the drop was because investors are “just scared with where interest rates are going to go.”

There is a high likelihood that the Federal Reserve will up rates come December, the trader speculated. With a strengthening dollar and falling oil, signs of rapid inflation are appearing, which could result in rates rising quicker than expected.

The trader also opined that the primary market would be near silent for the remainder of the year.

But while the preferred space was again under pressure, Fannie Mae and Freddie Mac paper continued to push higher. The election has brought the names front and center, as investors speculate that a Trump presidency will mean that the GSEs will be able to recapitalize themselves once again.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OYCBB: FNMAS) were up 6 cents, or 1.06%, at $5.71 in early trading. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OYCBB: FMCKJ) were up 14 cents, or 2.62%, at $5.49.

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