Morning Commentary: Yellen comments, data point to rising odds of rate hike; market trades off

By Stephanie N. Rotondo

Seattle, Feb. 15 – Preferred stocks were mildly weaker early Wednesday, which one trader attributed to “follow-through after [Federal Reserve chairman Janet] Yellen’s comments yesterday.”

On Tuesday, Yellen spoke to the Senate Banking Committee and indicated that it would be better for the central bank to act quickly on interest rates, though with caution.

A slurry of economic data – including the latest inflation numbers – seemed to point toward the increasing possibility that rates could move upward as soon as March. Specifically, inflation figures rose above the Fed’s 2% target range last month at 2.3%.

“We’ll most likely see a rate hike because of that, maybe sooner than later,” a trader said.

Still, there remained a fair bit of uncertainty in the market, as investors “wait and see” what Steven Mnuchin, the newly confirmed Treasury Secretary, would do. The new administration’s talk of a new tax plan also has players wondering what will come next, the trader said.

The Wells Fargo Hybrid and Preferred Securities index was off 11 basis points at mid-morning. The U.S. iShares Preferred Stock index was unchanged to slightly lower in early dealings.

The primary market continued to be silent on Wednesday, but a trader commented that “we could see a deal launch tomorrow.”

He was not sure where that deal would be coming from.

The trader also noted that he was hearing talk of as many as three deals for next week, which are all expected to be at least $150 million and rated high yield.

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