Fannie, Freddie upsurge continues, though volume drags; State Street leads on small-volume day

By Colin Hanner

Chicago, May 12 – Though activity paled compared to Thursday’s volume, Fannie Mae and Freddie Mac continued to rally as among the more active issues in the preferred space, market sources said.

On a day when liquidity and movement were lacking, the Wells Fargo Hybrid and Preferred Securities index was up 13 basis points, while the U.S. iShares Preferred Stock ETF was up 21 bps on the day.

On Thursday, Fannie and Freddie issues were several points higher across the board after a Wall Street Journal article described how the testimony of Mel Watt, the director of the Federal Housing Finance Agency, could play to the future of efforts to revamp the GSE’s in the coming year.

With Fannie and Freddie set to lose their current capital buffer in 2018, Watt expressed concerns about putting taxpayers back into harm’s way. Should either GSE have just one bad quarter, that would likely result in the agency drawing from the Treasury once again.

“People think that’s the first step toward recapitalization and that it might enforce Congress to act on it because that’s been their ATM for the past eight years,” a market source said. “You could see some changes there.”

Yet, with the Congressional calendar stacked for the year ahead, especially with proposed tax reform towering over the future of GSE’s in terms of urgency, investors may be banking on a temporary talking point, a market source said.

Nonetheless, the gains continued Friday.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were up 6 cents, or 0.14%, to $38.87, exchanging hands close to 1.4 million times. More than 2.1 million trades were conducted in that issue on Thursday.

And the agency’s 8.25% series T noncumulative preferreds (OTCBB: FNMAT) were up 5 cents, or 0.72%, to $6.95.

Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) were up 6 cents, or 0.89%, to $6.90, trading just over 300,000 times.

Secondary movers

State Street Corp.’s 5.35% series G fixed-to-floating rate noncumulative preferreds (NYSE: STTPrG) were up 5 cents, or 0.19%, to $26.90.

Citigroup Capital XIII’s 7.875% fixed-to-floating rate trust preferreds (NYSE: CPrN) were flat at $26.22.

And Axis Capital Holdings Ltd.’s 5.50% series E noncumulative preferreds (NYSE: AXSPrE) were up 18 cents, or 0.74%, to $24.44.

-Stephanie N. Rotondo contributed to this review

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