Preferred stocks decline to start week; oil prices wane, dragging down sector shares

By Stephanie N. Rotondo

Phoenix, Sept. 28 – The preferred stock market was following the broader markets downward Monday, fueled by ongoing concerns about the global economy – particularly China.

“There was lots of red today,” a market source said.

Additionally, the markets remained worried about when – or if – the Federal Reserve intended to raise interest rates.

Adding fuel to the fire was the possibility of a government shutdown as Republicans and Democrats fight over the next fiscal year’s budget. Should a shutdown occur, “it will definitely put a damper on the economy,” a trader said.

Without any clear indication of how the various events would unfold, “we’re just going to have a sideways market.”

As for the primary space, a trader said he hadn’t yet heard of any new deals slated for the week.

“I think everything is on hold until the market stabilizes a little bit,” a source remarked. “I’d be shocked if anybody brought anything new.”

The Wells Fargo Hybrid and Preferred Securities index ended 24 basis points weaker on the day. The index was off 8 bps at mid-morning.

Oil and gas names were taking a hit, as domestic crude oil prices kicked off the week with a weaker tone.

West Texas Intermediate crude declined 2.47% on the day.

“Oil was off again, so any natural gas or resource issues are going to be beat up again,” a trader said.

Vanguard Natural Resources LLC’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP) were down $1.36, or 7.08%, to $15.69.

“They are obviously having some serious credit problems,” a source said, noting the sector-wide struggles amid declining oil prices.

Magnum Hunter Resources Corp.’s 8% series D cumulative preferreds (NYSE: MHRPD) were meantime down $4.15, or 45.6%, at $4.95.

And, Goodrich Petroleum Corp.’s 9.75% series D cumulative preferreds (NYSE: GDPPD) were down 24 cents, or 19.67%, at 96 cents.

Fannie, Freddie decline

Fannie Mae and Freddie Mac paper was busy and lower on the day as investors were “maybe speculating on legislative options now that Boehner has resigned,” a market source opined.

John Boehner announced his resignation on Friday. He will exit his Speaker of House position in October.

But the source also noted a Washington Post editorial that came out over the weekend. Though the piece had “nothing really new” to report, it was “pretty negative on GSEs,” the source said.

“It does call for abolishing Fannie and Freddie and replacing it with something new,” he said.

In particular, the editorial mentioned the recently re-introduced “Jumpstart GSE Reform Act,” which is aimed at preventing mortgage guarantee fee increases from being passed to borrowers and requires the U.S. Treasury to hold onto its preferred stake in the agencies, unless Congress approves selling it or some significant housing reform is taken.

“Though it would not create a new housing finance system, the bill would encourage lawmakers to stop procrastinating,” the editorial said.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) closed off 9 cents, or 1.88%, at $4.71. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) dipped 8 cents, or 1.67%, to $4.72.

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