Morning Commentary: Preferreds modestly soft as Yellen addresses Congress; NuStar launches deal

By Stephanie N. Rotondo

Seattle, Nov. 17 – Preferred stocks were only slightly off early Thursday, as Federal Reserve chairman Janet Yellen told Congress that an interest rate increase was “appropriate relatively soon.”

In her Thursday speech, Yellen also cited the dangers of waiting too long to act, which could result in the Fed having to move too quickly for the markets to handle.

The Wells Fargo Hybrid and Preferred Securities index was off 5 basis points at mid-morning.

The primary market was actually seeing some action, as NuStar Energy LP announced plans to sell $100 million of series A fixed-to-floating rate cumulative redeemable perpetual preferred units.

Price talk is 8.5%, according to a market source.

A trader saw the issue at $24.90 bid in the early gray market.

“I’m kind of shocked that they are bringing a deal in this market,” the trader commented, especially as new housing and unemployment figures were “so strong.”

According to the reports out Thursday, housing starts surged 25.5% in October, while unemployment applications fell to a 43-year low last week.

In secondary trading, Fannie Mae and Freddie Mac preferreds remained strong. The securities have been on the rise since the election but began to wane on Tuesday, likely due to profit-taking. Come Wednesday, the preferreds popped again, with one market source noting a favorable Seeking Alpha article that might have helped the GSE-linked paper along.

However, he noted that the article contained “nothing new.”

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were up 25 cents, or 4.42%, at $5.90 at mid-morning. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) were up 19 cents, or 3.54%, at $5.56.

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