Preferred stocks see slight sell-off after week’s strong start; Fannie, Freddie active

By Stephanie N. Rotondo

Seattle, Jan. 5 – The preferred stock market continued to see strength in early Thursday dealings but eventually sold off, according to market sources.

“We are seeing a little sell-off,” a trader said. Another market source said the losses were “not a lot” in the wake of the two-day run-up, speculating that the weakness was due to tax-related selling.

One thing weighing on the market was interest rates, or rather, where rates will be over the next few years.

“Everyone is trying to determine where interest rates will be over the next two years,” a trader added.

Another question on investors’ minds was how regulations will or will not change for banks. If the incoming administration holds its promise to roll back certain regulations that have been put in place since the financial crisis, banks might not need to raise additional capital.

Those questions may be addressed – at least partially – next week when bank earnings season begins.

The Wells Fargo Hybrid and Preferred Securities index closed down 10 basis points. The index was up 27 bps at mid-morning.

A source also pointed out that while liquidity continued to be muted, there were a few exceptions – most notably, Fannie Mae and Freddie Mac.

The GSE-linked preferreds topped the charts on Thursday, bucking the day’s downward trend.

Fannie’s 8.25% series T noncumulative preferreds (OTCBB: FNMAT) improved a dime, or 1.27%, to $7.98, while the 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAT) added 22 cents, or 2.83%, to close at $8.00 even.

Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) rose 6 cents to $7.65.

Vanguard loses steam

Vanguard Natural Resources LLC’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) traded off on Thursday after the company said it might not be able to make a $37.5 million deficiency payment on its senior secured reserve-based credit facility on Feb. 2.

The units dropped 23 cents, or 8.01%, to $2.64. The decline placed the issue among the day’s biggest percentage losers.

In a regulatory filing on Thursday, the Houston-based oil and gas company said it managed to make the Jan. 3 payment through a monetization of substantially all of its commodity and interest rate hedges with net proceeds totaling $11.7 million on Dec. 19, combined with $6 million of proceeds from recent asset sales and $19.8 million from cash on hand. But it did not believe that current cash flow would be enough to make the next payment.

As such, Vanguard said it is actively considering all options, including continuing talks with potential new investors, as well as with existing creditors about longer-term balance sheet solutions.

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