Morning Commentary: Preferreds strong ahead of Fed’s rate decision; Saratoga sells upsized notes

By Stephanie N. Rotondo

Seattle, Dec. 14 – Preferred stocks continued to be firm in early midweek trading, though liquidity remained subdued.

The lack of volume was likely due to the market waiting to see how the Federal Reserve would act on interest rates, though it is widely believed that rates will increase.

The central bank is slated to make its latest policy announcement later in the day.

The Wells Fargo Hybrid and Preferred Securities index was up 8 basis points at mid-morning.

A new issue was in market: Saratoga Investment Corp. sold $65 million of 6.75% $25-par notes due 2023, upsizing from $55 million and coming in line with price talk.

However, a trader said there were “no real markets” for the new deal as of mid-morning.

Among other recent issues, KeyCorp’s $500 million of 6.125% series E fixed-to-floating rate noncumulative perpetual preferred stock – a deal priced Dec. 5 – were softening in early dealings, trading down a dime at $25.35.

And while the secondary market was trending higher, the most active securities as of mid-morning were actually weaker.

Ally Financial Inc.’s 8.125% series 2 fixed-to-floating rate trust preferred securities (NYSE: ALLYPA), for instance, were off 8 cents at $25.32. Fannie Mae’s 8.25% series S fixed-to-floating rate noncumulative preferreds were down 4 cents at $8.35.

And, U.S. Bancorp’s 6.5% series F fixed-to-floating rate noncumulative preferreds (NYSE: USBPM) declined 2 cents to $27.95.

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