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Midday Commentary: Mixed economic data weighs on preferreds; Fannie, Freddie sell-off continues
By Stephanie N. Rotondo
Phoenix, Nov. 21 - Tenuous economic data was weighing on the preferred stock market on Thursday.
A trader said better-than-expected job numbers helped the common equity realm "rebound," but that "sketchy" retail sales were causing investors to "worry about how that will effect the economy.
"Treasuries have moved up," the trader further noted, adding that the spread between preferred and Treasury yields were at the widest level seen since July when the markets reacted to news that the Federal Reserve could soon begin tapering its bond repurchase program.
"It could be overdone," the trader said. But as deals from earlier in the year have "gotten clobbered," he was expecting many investors to take a tax-loss on some preferred investments or that investors would start moving into issues with floating rates.
The Wells Fargo Hybrid and Preferred Securities index was down 3 basis points at mid-morning.
Fannie Mae and Freddie Mac preferreds were losing ground in early trading. A trader said that on Wednesday there was a report out that indicated the White House was against recent proposals from Pershing Capital Management and other hedge funds to take over the mortgage guarantors. While that wasn't surprising, it was yet another element to create volatility in the agencies' preferreds.
"Everyone knows the White House doesn't have a plan," the trader said. The federal government has instead been pushing for a liquidation and replacement of the two entities.
Freddie's 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) were off 14 cents, or 1.56%, at $8.50. Fannie's 8.25% series T noncumulative preferreds (OTCBB: FNMAT) had lost 34 cents, or 3.47%, as of mid-morning, trading at $9.45.
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