Midday Commentary: Preferreds begin week soft; Fannie, Freddie posting gains on Perry lawsuit

By Stephanie N. Rotondo

Phoenix, July 8 - Preferred stocks were extending losses from late last week into Monday trading, a trader said.

"I thought we'd see a continued sell-off," he said. However, he noted that Treasuries were perking up a bit, which helped the sell-off from becoming a major event.

Still, low-coupon issues were still taking the brunt of the beating and "all the preferred funds are down."

But Fannie Mae and Freddie Mac preferreds were bucking the day's trend, trading as much as 45 cents higher at midday. A trader said the gains came on the back of a lawsuit filed by Perry Capital on Sunday, in which the hedge fund alleged that the U.S. Department of the Treasury and the Federal Housing Finance Agency acted illegally when they placed both mortgage firms into conservatorship in 2008, thereby damaging the positions of shareholders.

"Some people are thinking they may have a leg to stand on," the trader said, accounting for the uptick in the preferreds.

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