Fannie, Freddie beat market trend, end higher; AT&T gyrates; U.S. Cellular notes list on NYSE

By Stephanie N. Rotondo

Portland, Ore., May 16 - A preferred stock market source said that away from Fannie Mae and Freddie Mac - the "big movers" of the day, according to another source - the preferred space was "much more mixed to down" in Monday trading.

He estimated that the market fell 5 cents to 10 cents on the day.

Fannie Mae and Freddie Mac, however, beat the market trend. The preferreds were reportedly reacting to a news story that speculated on the future of the mortgage backers.

Meanwhile, AT&T Inc.'s capital securities gyrated throughout the day. They traded between $26.60 and $26.90 on the back of a recommendation from a SeekingAlpha.com writer. But market sources questioned how good of an investment the issue really is.

Among recent new issues, United States Cellular Corp.'s $25-par notes officially listed on the New York Stock Exchange on Monday. In response, the notes traded down.

Fannie, Freddie move up

Preferreds of Fannie Mae and Freddie Mac were "big movers," a trader said, as investors pondered what will become of the government-backed mortgage guarantors.

The trader said the interest and subsequent moves followed a news story in the Wall Street Journal titled "Fannie Mae and Freddie Mac's Nine Lives."

"There was a lot of activity after that news story in the Journal," said another market source. "A lot of moves up."

Democrats and Republicans have been fighting about what to do with Fannie Mae and Freddie Mac. Some want to shutter the two, and others want to reform them and eventually remove their government subsidies. There is currently a reform bill floating around, but it is unclear whether it will get the necessary approvals.

"It's way too early to speculate one way or another," the second source said. With the highest-priced preferred trading around $5.50 between the two entities, "that's not giving a lot of confidence."

"Something could get done, but I would be cautious," the source said.

Fannie Mae's 4.75% series L preferreds were up the most, gaining $1.05 to close at $5.10.

AT&T paper gyrates

There was "decent volume" in AT&T's 6.375% senior $25-par notes due 2056, a source said, after a SeekingAlpha.com report deemed the security one of five top preferreds for "high income and safety."

But with a yield to call of negative $2.59, the source wondered why the preferred would be considered a good option.

"Why would you buy that with a negative call when it's callable next year?" he asked. "It's just not attractive."

The call date is Feb. 15, 2012.

Before the market closed, a trader saw the notes (NYSE: ATT) trading up at $26.81, which placed the yield to call at negative $3.21. The first source called the paper down 2 cents at $26.69, on about 134,000 shares trading, at the close.

A third source saw the issue at $26.65, down 6 cents, with over 150,000 shares trading.

AT&T is a Dallas-based telecommunications provider.

U.S. Cellular issue lists

Traders reported that U.S. Cellular's new 6.95% $25-par notes officially listed on the NYSE on Monday. The ticker symbol is "UZA."

On the listing, the "baby bonds" fell back below par.

"You'd think it would be the other way around, but it isn't," a source said.

He saw the securities open at par bid, $25.10 offered and then close around $24.85.

Another source pegged the issue at $24.86.

"All the new issues are moving up slowly," the second source said. He also saw Gulf Power Co., a Southern Company's 5.75% series 2011A senior notes at $24.95, about unchanged from Friday.

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