Preferreds rebound after Fed minutes but still end weaker; ETFs active; oil sector lower

By Stephanie N. Rotondo

Phoenix, Feb. 18 – The preferred stock market ended weaker Wednesday, though a market source noted that there was a slight rebound after the Federal Reserve released the minutes from its January meeting in the late afternoon.

The minutes showed continuing concerns about low inflation as well as a wait-and-see approach as to when to raise interest rates.

The Wells Fargo Hybrid and Preferred Securities index finished down 29 basis points but was off “40 or so” bps prior to the Fed announcement, the source said.

And while overall liquidity was “light-ish,” according to the source, there was a fair bit of activity in preferred stock ETFs.

In particular, the iShares US preferred stock index (NYSE: PFF) – the largest of the preferred ETFs – saw trading of about 5.43 million shares.

That compared to the three-month average daily volume of 2.08 million shares.

“They have been getting a lot of cash into them,” a source said of ETFs in general. The PFF, however, is currently “at an all-time high in like ever in terms of size.”

The PowerShares Preferred ETF (NYSE: PGX) – deemed the second largest ETF in the space – is “also high,” the source said.

“They can both influence the market,” he remarked.

Oil sector declines

Concerns about the current oversupply of oil flared up again on Wednesday, resulting in a decline in oil prices.

West Texas Intermediate crude dropped $1.81, or 3.38%, to $51.72, while Brent crude lost $2.50, or 4%, ending at $60.03.

The price moves came ahead of a report on supply from the American Petroleum Institute, which was released after the market closed. The report said that crude supplies jumped 14.3 million barrels in the last week. Analysts had forecast a gain of only 3.1 million barrels.

There was also an explosion at an ExxonMobil refinery in Southern California early in the morning. The explosion left four people with minor injuries.

In the preferred oil and gas space, the trend was mostly toward the negative side, though there were a couple securities that managed to edge up.

Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP) dropped more than 1% on the day, ending 23 cents lower at $21.97.

Goodrich Petroleum Corp.’s preferreds were meantime mixed. The 10% series C cumulative preferreds (NYSE: GDPPC) fell 20 cents, or 1.96%, to $10.00 per share. But the 9.75% series D cumulative preferreds (NYSE: GDPPD) rose 6 cents to $9.50.

Vanguard Natural Resources LLC’s securities were also mixed on the day.

The 7.875% series A cumulative redeemable preferred units (Nasdaq: VNRAP) finished up 11 cents at $24.43, while the 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) dipped 2 cents to $21.68.

On Tuesday, Vanguard said it was issuing cash distributions for its preferred units on March 17. There was no change in those distributions, but the company did cut its common unit distributions by 10 cents.

In related securities, Regions Financial Corp.’s 6.375% series B fixed-to-floating rate noncumulative preferreds (NYSE: RFPB) were down 18 cents at $25.03.

Regions, a Birmingham, Ala.-based financial services company, has a fair bit of exposure to the oil industry.

Fannie, Freddie give up gains

Fannie Mae and Freddie Mac preferreds were giving up the some of the previous day’s gains in midweek trading.

“They are still popping around,” a trader said. “Most are down about 10 cents.”

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined 2 cents to $4.55. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were down 17 cents, or 3.61%, at $4.68.

The agencies’ preferreds were up 9% to 12% on Tuesday, as investors reacted to positive comments from activist investor Bill Ackman and a story regarding the government’s assertion of presidential privilege on some documents in a lawsuit with shareholders.

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