Preferreds fluctuate as equities slip; bank earnings on tap; new issues in the works

By Stephanie N. Rotondo

Phoenix, Jan. 9 – Preferred stocks were essentially flat in early Friday trading as the broader equity markets looked to be giving up some gains from the previous session.

The Dow Jones industrial average popped 324 points on Thursday but ended Friday trading down nearly 171 points.

As for the preferred space, it was trading in “a narrow range,” a market source said, but showed modest signs of volatility.

“It was mostly down for most of the day,” the source said. In the last hour or so, the market began to tick up.

The Wells Fargo Hybrid and Preferred Securities index finished the day off 6 basis points.

Liquidity in the preferred market has been rather subdued since the beginning of the year. But with bank earnings slated to begin next week, that could not only spark activity in the secondary but also in the primary.

One trader said that he was hearing of a few “baby bond” deals coming this month and “a couple big deals” that were in the works. He opined that they would likely come after the banks exit their blackout period.

The trader also remarked that investors should be “rushing in here,” given the yields preferreds offer versus Treasury yields. With Treasury yields at such low levels, oil prices on the decline, a strong dollar and improving jobs numbers, investors and issuers alike could benefit.

Citigroup cutting bonuses

While trading volume continued to be on the low side, there was a decent amount of trading going on in Citigroup Inc.’s 6.875% series K fixed-to-floating rate noncumulative perpetual preferreds (NYSE: CPK).

About 1.73 million of the shares changed hands, ending a penny higher at $26.65.

A market source said the bulk of that activity was “probably one or two investors.”

The New York-based bank was in the news late in the day as the Wall Street Journal reported that Citigroup was slashing year-end bonuses in its fixed-income and equities units due to a poor finish in 2014.

Bonuses are expected to be 5% to 10% lower than the previous year.

The bonus cut could be a prelude to the firm’s trading revenues for the quarter and for the year, which was already down 9% based on third-quarter figures.

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