Morning Commentary: Preferreds moving up ahead of Fed’s rate decision; Fannie, Freddie resume slide

By Stephanie N. Rotondo

Seattle, Dec. 16 – The preferred stock market was firming ahead of the Federal Reserve’s interest rate decision expected from its meeting on Wednesday.

The Wells Fargo Hybrid and Preferred Securities Index was up 27 basis points at mid-morning.

A trader said the market was largely anticipating the central bank to raise rates by 25 basis points upon the conclusion of its two-day policy meeting. But what the market was really looking to was the “follow-on language,” he said – that is, how and when will future rate hikes be handled?

As for the day’s dealings, Fannie Mae and Freddie Mac paper resumed their sell-off at midweek after holding steady on Tuesday. A trader said the recent weakness in the GSE preferreds could be due to market concerns over the strength of shareholder lawsuits currently pending against the government but that the declines were likely more due to tax-loss selling.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were off 38 cents, or 10.86%, at $3.12 in early trading. Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were 40 cents, or 11.43%, weaker at $3.10.

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