Preferreds start week with mixed tone amid government concerns; Morgan Stanley improves

By Stephanie N. Rotondo

Seattle, March 27 – Preferred stocks were slightly mixed as the final trading week of March got underway.

The Wells Fargo Hybrid and Preferred Securities index slipped just 1 basis points, though the index was off 15 bps at mid-morning. The U.S. iShares Preferred Stock ETF was meantime up 10 bps, versus the 4 bps gain seen earlier in the day.

A trader commented that with Friday’s “failure of the health care bill,” Treasury bonds were rallying as investors turned their attention toward the Trump administration’s promises of a reformed tax code.

In particular, preferred stock investors will be looking to see how the plan will impact utilities and bank holding companies. The trader said that certain provisions, such as how such entities deduct interest expenses, could play a role in how ratings are assigned, which could shake up the market.

But with no forward movement detected as of yet on Trump’s tax plan, the preferred market was on the quieter side, a trader reported.

“I think the market had gotten ahead of itself in the post-election run-up,” said another market source. “So I’d say a correction would be a good thing.”

In trading, Global Indemnity Ltd.’s $120 million of 7.875% $25-par subordinated notes due 2047 – a deal priced March 16 – were seen at $24.90 bid, $24.95 offered in early dealings.

A trader said the new issue is expected to list on the Nasdaq Global Select Market later this week. The expected ticker symbol is “GBLIL.”

Meanwhile, Morgan Stanley & Co. Inc.’s 5.85% series K fixed-to-floating rate noncumulative preferreds (NYSE: MSPrK) outperformed the market, rising 23 cents to $25.91.

However, Ally Financial Inc.’s 8.125% series 2 fixed-to-floating rate trust preferred securities (NYSE: ALLYPrA) did not, losing 3 cents to close at $25.29.

Even GSE-linked paper was mixed for the day.

Fannie Mae’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined 2 cents to $6.88. Freddie Mac’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) managed to climb higher, adding 8 cents, or 1.24%, to $6.53.

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