Midday Commentary: Preferreds sell off amid China, global fears; spreads widen to near 2008 levels

By Stephanie N. Rotondo

Phoenix, June 24 - Preferred stocks were "getting smashed" on Monday, a trader said, as China said a liquidity issue facing its banks would not be helped by the government.

"Everyone is worried about a global retreat," the trader said, noting that spreads of preferreds versus Treasuries were "almost wider" than they were in 2008 during the financial crisis.

"So it's kind of odd," he said. In these situations, when investors are looking for safe ports to ride out the storm, they usually put their money into Treasuries, he said.

"But we're not seeing that," he said.

That begs the question: where is that money going? The trader speculated that with all the recent ETF outflows, perhaps managers and other investors were simply sitting on their cash, waiting for the new quarter to start July 1.

Regardless, the trader said that the preferred market was "clearly oversold," in his opinion.

A look forward through the week indicated that there would continue to be a lack of new issues in the market.

"I am 99.9% sure there will be no deals this week," a trader said, aside from a planned offering of $25-par notes due 2020 from Full Circle Capital Corp.

That deal is expected to price on Tuesday. It was originally announced on May 2.

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