Midday Commentary: Fed's QE3 could be good for preferreds; Apollo Residential deal on tap

By Stephanie N. Rotondo

Phoenix, Sept. 13 - The big news of the day was the Federal Reserve's announcement that it had launched a third round of quantitative easing on Thursday.

That could be a boon for preferreds, one trader opined.

"It's interesting in the sense that it could force Treasury rates to stay at these levels," he said. As such, "people are going to start rushing out for yield." Because preferred stocks are relatively cheap when compared to the rest of the markets, that could cause some action in the space.

However, there is a potential downside, he said. Mortgage rates will likely hold at their current low levels, which in turn could be a problem for real estate investment trusts.

"They can't pay these high dividends when 30-year mortgage rates are at 3.5%," the trader said.

Still, it might be more of an issue for the common than the preferreds, he said.

Of the day's goings-on, New York-based Apollo Residential Mortgage Inc. announced an offering of at least $75 million series A cumulative redeemable perpetual preferreds.

Price talk is around 8%, according to a trader.

The trader saw the issue offered at $24.82 in the gray market at midday.

He also remarked that he had heard the book was sold out early.

"They may increase it; they may just put it away," he said.

Morgan Stanley & Co. LLC, UBS Securities LLC and J.P. Morgan Securities LLC are the joint bookrunners. Co-managers are Credit Suisse Securities (USA) Inc., RBC Capital Markets LLC, Stifel Nicolaus & Co. Inc. and JMP Securities.

Proceeds will be used for acquisitions.

Meanwhile, the Bank of New York Mellon Corp.'s new $550 million of 5.2% series C noncumulative perpetual preferreds had not yet freed to trade, according to trader.

The deal priced Wednesday. Pricing was revised from 5.25%. The issue was originally expected to be around $250 million, but the rumor mill had it growing anywhere from $400 million to $1 billion, according to a market source.

A trader quoted the issue at $24.90 bid, $24.92 offered.

Bank of America Merrill Lynch, Citigroup Global Markets Inc., Goldman Sachs & Co., JPMorgan and BNY Mellon Capital Markets LLC are the joint bookrunners. Barclays and Deutsche Bank Securities Inc. are the co-managers.

Proceeds will be used for general corporate purposes. Some of the proceeds might be contributed to subsidiaries to be used for general corporate purposes.

BNY Mellon is a New York-based financial services firm.

Also in the primary, Public Storage's $450 million of 5.375% series V cumulative perpetual preferred shares of beneficial interest - a deal that priced Tuesday - was seen trading at $24.85.

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