Preferreds steady, but liquidity thin on upcoming holiday; Fannie, Freddie show gains

By Stephanie N. Rotondo

Phoenix, July 1 - The beginning of the third quarter was "very quiet" for the preferred stock market, according to a trader.

"It's going to be dead this whole week," he said Monday, pointing to Thursday's Fourth of July holiday. Because of the holiday, the market will close early on Wednesday and will reopen on Friday, though the trader speculated that many players would remain out on the last trading day of the week.

"There's no real news pushing preferreds back up," the trader added, but up they were regardless. The trader said he expected the strength to remain in the market throughout the week, even with the upcoming holiday.

Still, he commented that the market "may not get back to the levels they were three weeks ago," but firm they would be.

"I'm guessing there won't be any deals," he noted, again noting the holiday.

Another market source said the preferred space "spiked up in the first hour then kind of faded." He said the market finished the day essentially flat from Friday levels.

He also commented that liquidity was light, which he said was "not surprising," given the "shortened week.

"Not a lot of people will be in Friday either," he said.

In secondary dealings, Fannie Mae and Freddie Mac preferreds continued to be active. The paper was boosted Monday by news that Citigroup Inc. had reached a $968 million settlement deal with Fannie to tie up unresolved claims on 3.7 million high-risk mortgage loans.

Fannie, Freddie firm

Fannie Mae and Freddie Mac preferreds continued to be busy as the securities firmed up on Monday following news of a bank settlement.

Fannie's 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose 29 cents, or 6.37%, to $4.84, while Freddie's 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) jumped 20 cents, or 4.37%, to $4.85.

On Monday, Citigroup and Fannie announced that the two had come to terms on a settlement regarding mortgages the agency had purchased from the bank during the housing boom. Citi will pay $968 million to settle any future claims Fannie has on the loans.

Both Freddie and Fannie have gone after banks in an effort to get them to buy back mortgages that turned sour. The companies have alleged that the banks sold the mortgages to them without indicating what the quality really was.

In other Fannie and Freddie news, the U.S. Department of the Treasury said Monday that it had received another round of dividend payments from the agencies.

Fannie paid $59.4 billion and Freddie doled out $7 billion. Fannie has paid back about $96 billion of the $116 billion it took in taxpayer funds following the financial crisis. Freddie has paid back about $37 billion of the $71.3 billion it received.

A new rule enacted last year requires both Fannie and Freddie to turn over any net worth above $3 billion each quarter to the Treasury.

Last week, the so-called Corker bill - legislation that would liquidate the two mortgage giants within five years - was introduced into the Senate. The news was not taken well and the preferreds took a dive.

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