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Morning Commentary: New jobs figures increase chance of December rate increase; preferreds tighten
By Stephanie N. Rotondo
Seattle, Nov. 6 – The latest U.S. jobs number was “much stronger than expected,” a preferred stock trader said Friday, increasing the likelihood of an interest rate increase in December.
The trader said the buzz was that there was a 70% chance of a hike in the coming month.
In October, nonfarm payrolls increased by 271,000, the biggest gain in nearly a year. Unemployment meantime dipped to 5% from 5.1% previously. Those figures, coupled with a strong dollar and declining oil, have many market players thinking that a rate increase is imminent, especially if the data stays strong in the coming weeks.
In response, the preferred stock market was experiencing “a decent sell-off, but not much.”
The Wells Fargo Hybrid and Preferred Securities index was off 49 basis points at mid-morning.
The trader noted that recently priced issues that had been performing well, such as the Southern Co.’s 6.25% $25-par series 2015A junior subordinated notes due 2075 (NYSE: SOJA), were tightening in the wake of the latest economic data.
The notes were off 35 cents, or 1.34%, at $25.85. The paper had been trading well over $26.00.
Still, Citigroup Inc.’s $1.5 billion of 6.125% $1,000-par series R fixed-to-floating rate noncumulative perpetual preferreds – a deal priced Thursday – were holding in at 100.375 bid, 100.5 offered.
The issue freed to trade early in the session, according to a trader.
Looking ahead, a trader said the possibility of the Federal Reserve raising interest rates sooner than later “hopefully will inspire some bankers to bring some new issues in the next few weeks.”
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