Morning Commentary: Preferreds again firm; carnage continues in GSE paper; Morgan Stanley busy

By Stephanie N. Rotondo

Seattle, Feb. 22 – The preferred stock market was again starting out with a firm feel early Wednesday, following in the footsteps on Tuesday’s session.

The Wells Fargo Hybrid and Preferred Securities index was up 6 basis points at mid-morning, while the U.S. iShares Preferred Stock index was up 16 bps.

Though the market was generally ticking upward, “Fannie and Freddie were jumping all over the place again,” according to one sellside source.

Fannie Mae and Freddie Mac preferreds got beat down on Tuesday after the U.S. Court of Appeals ruled 2-1 that the Recovery Act essentially barred investors from pursuing their claims against the government in regards to the net worth sweep.

Some claims, however, were remanded to the lower court – specifically, contract-related claims.

By Tuesday’s close, the agencies’ preferreds had dropped by more than 28%. The carnage then continued in early midweek dealings.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were off 75 cents, or 9.7%, at $6.98, on about 1.86 million preferreds exchanged. Over 500,000 of Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (TOCBB: FMCKJ) had traded at mid-morning, falling 83 cents, or 11.1%, to $6.65.

Meanwhile, Morgan Stanley & Co. Inc.’s 5.85% series K fixed-to-floating rate noncumulative preferreds (NYSE: MSPrK) continued to trend higher, adding another penny to trade at $25.64.

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