Preferreds muted as investors eye FOMC; recent deals stay on radar; Fannie shares fall

By Stephanie N. Rotondo

Phoenix, Sept. 14 – Preferred stocks were “bouncing around” in Monday trading, according to a market source.

On an index basis, he said the market moved “all within a basis point all day,” eventually ending “flat.”

The Wells Fargo Hybrid and Preferred Securities index closed off 1 basis point. By comparison, the Dow Jones industrial average was down 38 points, pressured in part by a decline in the energy sector as crude prices softened.

Looking to the week’s new issue calendar, a trader said he was “not hearing anything” planned for the week.

“I imagine they will try to clean [recent deals] up before they bring” anything new, the trader said.

He also noted that Rosh Hashana and the upcoming Federal Reserve meeting was keeping activity “quiet.”

The Fed will begin meeting on Wednesday and could decide to raise interest rates. But with the recent volatility in the marketplace, there is speculation that the increase could be put on hold or that the hike will be less than previously expected.

Of the day’s dealings, last week’s new issues remained in focus.

Qwest Corp.’s $400 million of 6.625% $25-par senior notes due 2055 – a deal priced late Thursday – were seen as free to trade and were quoted at $24.55 bid, $24.60 offered early in the day and closing at $24.65.

AmTrust Financial Services Inc.’s $125 million of 7.5% $25-par subordinated notes due 2055 – a deal priced Wednesday – were meantime pegged at $24.50 bid, $24.55 offered.

And while the broader market was selling off a bit, Wells Fargo & Co.’s $900 million of 6% series V class A noncumulative preferreds were trading closer to par, according to sources.

At mid-morning, one trader said the issue was at par, while after the bell, another source said the shares ended at $24.99, up 9 cents on the day.

That issue priced Tuesday.

Warren drops GSE bill support

A market source said there was “a lot of activity in certain GSE preferreds” as it was being reported that Sen. Elizabeth Warren (D-Mass.) had pulled her support for a Republican-sponsored reform bill that would have prevented the Treasury Department from selling its preferred stock holdings in Fannie Mae and Freddie Mac.

The news was “viewed as negative,” the source said, and the GSE preferreds finished the day weaker as a result.

The 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) declined 11 cents, or 2.24%, to $4.80. The variable-rate series O noncumulative preferreds (OTCBB: FNMFN) dropped 44 cents, or 4.84%, to $8.65.

Warren had previously endorsed the bill but changed her mind after language was revised to guarantee fees to be used for government spending. She was reportedly concerned that allowing such fees could result in those fees being handed down to low-income borrowers, should the fees increase.

The bill, which was introduced by Sen. Bob Corker (R-Tenn.), had been on the fast track in Senate, but without Warren’s support it is now in a holding pattern yet again.

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