Economic data initially weighs on preferreds, but market rebounds; Fannie, Freddie weaken

By Stephanie N. Rotondo

Phoenix, Nov. 21 - Tenuous economic data was weighing on the preferred stock market in early Thursday trading.

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 was 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, but by the afternoon it had reversed direction. The index finished the day up 15 bps.

By comparison, the Dow Jones industrial average hit new record highs during the session, ending above 16,000.

Fannie Mae and Freddie Mac preferreds closed the day with a softer tone amid heavy 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) closed off 26 cents, or 2.95%, at $8.38. Fannie's 8.25% series T noncumulative preferreds (OTCBB: FNMAT) dropped 45 cents, or 4.6%, to $9.34.

And, Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined by 40 cents, or 4.75%, to $7.95.

Secondary liquidity thins

There were no paying securities that saw more trading than Fannie and Freddie on Thursday.

"Liquidity was lighter than it has been, but it was still OK," a market source said.

ING Groep NV's 8.5% perpetual hybrid capital securities (NYSE: IGK) continued to be active ahead of the issue's Dec. 15 call date, though the price has been holding at $25.50.

Meanwhile, Citigroup Inc.'s paper also remained among the day's top traders - at least among paying securities. The 6.875% series K fixed-to-floating rate noncumulative preferreds (NYSE: CPK) lost a penny to close at $24.98, while the 7.875% fixed-to-floating rate trust preferreds (NYSE: CPN) rose a penny to $27.23.

JPMorgan Chase & Co.'s 5.5% series O noncumulative preferreds (NYSE: JPMPD) ended the day with a firm tone, closing up 9 cents to $20.87.

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