Preferred stocks rebound as week ends; jobs report, election in focus; Fannie, Freddie up

By Stephanie N. Rotondo

Seattle, Nov. 4 – After being in decline all week, the preferred stock market attempted to rally in Friday trading.

The Wells Fargo Hybrid and Preferred Securities index finished up 26 basis points. The index was up 6 bps at mid-morning.

The gains came as the Labor Department reported that non-farm payrolls increased by 161,000 in October. Though that was less than the 173,000-add that was expected, a trader noted that it “wasn’t a big miss.”

The report also showed the unemployment rate falling to 4.9% from 5% the month before.

Still, liquidity remained limited – with one notable exception – and a trader opined that the coming week would follow that trend, at least to start.

“Monday and Tuesday are going to be uneventful, except that we get a new president,” he said.

He noted that there is some concern that the election’s outcome could put pressure on the bond market, similar to the United Kingdom’s Brexit vote, “if there is a big upset.”

Among the week’s new issues, AXIS Capital Holdings Ltd.’s $550 million of 5.5% series E noncumulative preferreds – a deal priced Monday and trading under a temporary ticker, “AXHHF” – were recovering a bit, trading up to a $24.77 bid, $24.82 offered context, according to a trader.

The paper closed at $24.78, down 2 cents.

Hersha Hospitality Trust’s $100 million of 6.5% series E cumulative redeemable preferreds – a deal priced Tuesday – were meantime pegged at $24.82 bid, $24.90 offered. That was seen ending at $24.82, a gain of 7 cents on the day.

As to the day’s notable exception in terms of volume, Fannie Mae and Freddie Mac preferreds were quite active, and better. The GSEs reported earnings this week, both showing improved figures year over year.

However, one market source noted that the activity in the GSE-linked paper was possibly misleading.

Fannie, Freddie push higher

In the wake of positive earnings – not to mention a recovering market – Fannie and Freddie preferreds were pushing higher in rather active trading on Friday.

Fannie’s 8.25% series T noncumulative preferreds (OTCBB: FNMAT) clearly dominated the preferred market, trading over 28 million times during the session. But a source noted that the volume was “not exactly broad-based liquidity,” as it was done in two trades for 14 million preferreds each.

Still, the paper was higher for the day, finishing up nickel, or 1.25%, at $4.05.

The 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were also moving up, rising 14 cents, or 3.54%, to $4.09. Nearly 1.04 million of those preferreds changed hands.

In Freddie’s preferreds, the 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) gained 19 cents, or 4.92%, to close at $4.05. Almost 824,000 shares were exchanged.

Fannie reported its third-quarter results on Thursday, showing net income of $3.2 billion.

That compared to a profit of $2 billion the year before.

Of that amount, the agency plans to send $3 billion to the Treasury Department via a dividend payment. That will bring the total amount paid to the government to $154.4 billion – well above the $116 billion received during the financial crisis of 2008.

On Tuesday, Freddie reported a quarterly profit of $2.3 billion, which compared to the agency’s $475 million loss the year before.

The improved results were attributed to fewer delinquent mortgages, as well as stabilizing mortgage interest rates.

Freddie Mac also said that fees from lenders rose to $133 million from $9 million in the second quarter.

Of the profits, Freddie Mac will pay all of that amount to the Treasury Department via a dividend payment. Once paid, Freddie will have made $101.4 billion in dividends to the government – above the $71 billion received in the 2008 bailout.

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