Morning Commentary: Preferreds subdued as Fed, rates remain in focus; rumor of Citi deal circulates

By Stephanie N. Rotondo

Seattle, Oct. 26 – The preferred stock market was moving only modestly Monday, as investors kept an eye on Europe as well as the ongoing Federal Reserve-interest rate hike saga.

The Wells Fargo Hybrid and Preferred Securities Index was up 1 basis point at mid-morning.

A trader commented that different theories about the Fed’s looming rate increase continued to circulate. Some players, the trader said, are still predicting that rates will be upped, though expectations are that the increase will only be about an eighth of a percent. Others are opining that economic data will be the key to the central bank’s next move – though recent housing start figures were “a bad sign” and could indicate that the hike will be delayed, the trader said.

“Some think the Fed may announce a moratorium on the liftoff,” the trader said. “If that is the case, everything that is tied to it could jump through the roof as people reach for yield.”

Away from FedWatch, the primary market continued to be quiet as the week started off.

However, a trader said there was “a rumor of a [Citigroup Inc.] deal this week, but I don’t know if that is going to be the case.”

Speculation is that if the deal does come, it will have a 6.25% coupon.

Among recent deals, both Bluerock Residential Growth REIT Inc.’s $71.88 million of 8.25% series A cumulative redeemable perpetual preferred stock and UMH Properties Inc.’s $45.03 million of 8% series B cumulative redeemable preferred stock began trading on the New York Stock Exchange on Monday.

Bluerock’s ticker is “BRGPA.” UMH’s is “UMHPB.”

Both deals priced on Oct. 15.

The Bluerock paper was trading at $25.43 in early trading, down from opening levels of $25.60. UMH was meantime pegged at $26, up from $25.75 at the open.

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