Preferreds weaken with broad market; volume remains subdued post-holiday; Fannie, Freddie down

By Stephanie N. Rotondo

Phoenix, Jan. 5 – Preferred stocks were following the broader markets lower in Monday trading.

However, a trader noted that there was “not a whole lot of heavy volume” in anything.

The Wells Fargo Hybrid and Preferred Securities Index ended the day 22 basis points weaker. One market source noted that one index focused on fixed-to-floating issues – both $25- and $1,000-par – was down 28 bps.

The markets were struggling as oil prices fell to new lows – West Texas Intermediate crude was trading under $50, while Brent traded below $53 – Germany’s inflation increased less than expected, the euro declined against the dollar and concerns grew about Greece and the possibility that it might exit from the euro currency.

As for the preferred space specifically, there was no word yet of any planned new deals for the week, according to a trader.

Overall, the trader speculated that investors were looking to get their bearings as the first full week of the New Year began.

Housing speech on tap

President Barack Obama is slated to give a speech in Phoenix on Thursday and is expected to discuss housing reform.

The market will be looking to see whether he makes any comments with regards to Fannie Mae and Freddie Mac. If he does not make note of any housing reform proposals, that could indicate he is stepping away from his push to wind down the government-sponsored entities, according to a research report published by Keefe, Bruyette & Woods.

In that case, Fannie and Freddie’s preferreds could get a boost, the analysts opined.

But in Monday trading, the issues were trending lower with the overall market.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) fell a penny to $4.11, while Freddie’s fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) lost the same amount, closing at $4.09.

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