Preferreds sees upward momentum; oil prices a drag on sector paper; Fannie, Freddie off

By Stephanie N. Rotondo

Seattle, Dec. 17 – There was “general strength back in the preferred market,” a trader said Thursday.

The preferred stock market got hammered on Monday, dropping 1.65%. Since then, the market has been clawing its way “almost back to where we were Friday,” the trader said.

The Wells Fargo Hybrid and Preferred Securities index closed 46 basis points higher.

News Wednesday that the Federal Reserve had opted to raise interest rates by 0.25% for the first time since 2006 did not appear to be an obstacle in trading, nor was ongoing commodity price declines.

“Even with oil being off, even [oil and gas-linked preferreds] are rebounding too,” the trader said early in the session.

However, he noted that on those issues “the markets are super wide though.”

While sector preferreds might have initially been trending higher, they came in by the bell.

For instance, Goodrich Petroleum Corp.’s 10% series C cumulative preferreds (NYSE: GDPPC) were up in early trading but closed down 24 cents, or 4.26%, at 53 cents. Legacy Reserves LP’s 8% series B fixed-to-floating rate cumulative redeemable preferred units (Nasdaq: LGCYO) meantime dipped 4 cents to $5.11.

Also weaker were Breitburn Energy Partners LP’s 8.25% series A cumulative redeemable perpetual preferred units (Nasdaq: BBEPP), which declined 26 cents, or 4.82%, to $5.13.

A notable exception to the sector’s declines was Vanguard Natural Resources LLC’s 7.625% series B cumulative redeemable preferred units (Nasdaq: VNRBP), which gained 53 cents, or 7.58%, to end at $7.52.

For its part, domestic crude prices sank nearly 2% on the day, trading sub-$35 a barrel. The weakness came as Genscape released its latest report, showing a 1.4 million barrel build at the Cushing, Okla., delivery point.

Also weighing on the commodity’s price were comments from OPEC that indicated the oil cartel did not expect to see a significant price increase in 2016, nor a significant decline in production.

Fannie, Freddie in retreat

Fannie Mae and Freddie Mac preferreds continued to dominate trading. Early Thursday, the GSE paper was unchanged to slightly better, possibly indicating that a recent sell-off was coming to an end.

Those hopes were dashed by the end of the day, as the paper closed lower yet again.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) dipped a nickel, or 1.45%, to $3.39. The preferreds were up a penny at mid-morning, trading at $3.45.

Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were unchanged at $3.45 at mid-morning, but finished off 11 cents, or 3.19%, at $3.34.

This week, Congress agreed to a spending and tax bill that included a provision on the mortgage agencies. The provision prohibited the Treasury from a “recap and release” of the companies, requiring it to hold onto its preferred stake in the GSEs until at least until 2018 or until housing reform was done.

The Treasury has fought against moving toward a “recap and release” approach, though shareholders were pushing for such a plan as they fight against the 2012 “net worth sweep” imposed by the government.

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