Preferred stocks continue to sink; Fannie, Freddie stay in focus; Public Storage drained

By Stephanie N. Rotondo

Seattle, Nov. 14 – The preferred stock market remained in decline on Monday, following the trend set in the previous week in the wake of the U.S. presidential election.

The Wells Fargo Hybrid and Preferred Securities index finished off 133 basis points. The index was down 111 bps at mid-morning.

Preferreds have weakened significantly in the last week, as Donald Trump’s win came as a surprise. One trader commented that the drop was because investors are “just scared with where interest rates are going to go.”

There is a high likelihood that the Federal Reserve will up rates come December, the trader speculated. With a strengthening dollar and falling oil, signs of rapid inflation are appearing, which could result in rates rising quicker than expected.

The trader also opined that the primary market would be near silent for the remainder of the year.

Another market source noted that while the $25-par side of the preferred market has waned, the $1,000-par space “has performed dramatically better over the last few days.”

“A lot of this is technical and issues around rates, as opposed to credit spreads and credit concerns,” he said.

“It is a reassessment for us,” he added.

Fannie Mae and Freddie Mac paper continued to push higher early in the day before giving up the gains. The election has brought the names front and center, as investors speculate that a Trump presidency will mean that the GSEs will be able to recapitalize themselves once again.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were up 6 cents, or 1.06%, at $5.71 in early trading. However, the preferreds closed down 15 cents, or 2.82%, at $5.20.

As for Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ), they were up 14 cents, or 2.62%, at $5.49 at mid-morning. At the bell, the issue was off 13 cents, or 2.3%, at $5.52.

A source said the dip in those issues “may very well be profit-taking.

“That would make sense because things are kind of split across the [GSEs’] issues.”

For instance, Fannie’s 7.625% series R noncumulative preferreds (OTCBB: FNMAJ) made an appearance on the day’s most active list, outpacing the 8.25% preferreds, as well as Freddie’s 8.375% preferreds. That issue was up a quarter, or 5.26%, at $5.00 even.

Though the buzz has been that a Trump presidency could be good for the mortgage guarantors, one source thought the chatter was “a little bit pie in the sky at this point,” noting that neither Trump nor his campaign has directly spoke about plans for housing reform.

Still, a new Treasury Secretary will be appointed under the president-elect, and that person could have a different view of the GSEs than the current head. But the person in that role will have to focus on what is best for taxpayers.

“I don’t know that a change in the preferred agreement is good for taxpayers,” the source said. “But it is good for common and preferred holders.”

Away from the GSE issues, it was a sea of – mostly – red.

Public Storage’s 4.9% series E cumulative preferreds (NYSE: PSAPE) have gotten walloped since the election. In Monday trading, the preferreds declined 48 cents, or 2.24%, to $20.95.

That level compared to $23.44 on Nov. 8, i.e., Election Day.

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