Preferreds gyrate in wake of jobs report; rate increase eyed; GSE paper drifts lower

By Stephanie N. Rotondo

Seattle, Jan. 6 – The preferred stock market was “bouncing around with the jobs numbers,” a trader said on Friday.

The latest Labor Department report showed nonfarm payrolls rising by 156,000 in December, which was less than the 175,000 expected. The report also indicated that unemployment ticked up to 4.7% from 4.6%.

However, there were positive signs as well. November’s figures were upwardly revised to 204,000 jobs added during the month. Wages were also showing signs of growth, increasing 0.4% month over month and 2.9% from the previous year.

The yearly gain was the fastest improvement seen since June 2009.

A trader said that the data was leading market players to speculate that the Federal Reserve’s next interest rate increase could come in June.

The Wells Fargo Hybrid and Preferred Securities index was down 9 basis points at mid-morning but started to climb higher about 11 a.m. ET. A market source said the index moved up 17 bps toward the close. However, in the final minutes of trading, the index got knocked down again, closing off 20 bps.

Meanwhile, the primary space remained silent on Friday, but there was buzz that the pipeline could start flowing next week.

“I’m hearing a possible [business development company] next week,” a trader said, “and possibly another non-rated deal.”

Next week is also the kick-off to bank earnings season, which could jumpstart the new issue market.

In secondary dealings, GSE preferreds remained the most actively traded securities.

Fannie Mae’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were coming off of Thursday’s highs, slipping a penny to $7.99. Freddie Mac’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) dipped a nickel to $7.60.

Wells Fargo & Co.’s preferreds were also on the busy side, trading weaker on the day.

The 5.85% series Q fixed-to-floating rate noncumulative preferreds (NYSE: WFCPQ) fell 13 cents to $25.58, while the 5.5% series X class A noncumulative preferreds (NYSE: WFCPX) declined 9 cents to $23.74.

The 8% series J class A noncumulative preferreds (NYSE: WFCPJ), however, held steady at $26.45.

The San Francisco-based bank was in the news on Friday, as it was reported that the company intends to roll out a new compensation structure for its retail banking employees.

The plan is part of the company’s effort to counter its sales-tactics scandal that occurred in 2016.

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