Preferred stock market finishes week strong, though volume wanes; Fannie, Freddie down

By Stephanie N. Rotondo

Seattle, May 5 – Friday’s trading session started off mixed for the preferred stock market but ended strong once again, continuing a trend seen for most of the week.

The day’s gains came as a new jobs number topped expectations.

The Wells Fargo Hybrid and Preferred Securities index finished up 16 basis points. The U.S. iShares Preferred Stock ETF firmed 19 bps, though it was down 10 bps at mid-morning.

In April, 211,000 jobs were added, according to the latest Labor Department report. That resulted in the unemployment rate dipping to a 10-year low at 4.4%.

Wages meantime gained 0.3%, as was expected.

Still, the preferred market continued to see limited liquidity.

One trader noted that Fannie Mae had “strong earnings, so they’re jumping around a little bit.” The GSE posted a quarterly profit of $2.8 billion, which compared to the $2.2 billion profit peer Freddie Mac reported earlier in the week.

But as of mid-morning, the normally active issues weren’t all that busy.

What was busy was Ally Financial Inc.’s 8.125% series 2 fixed-to-floating rate trust preferred securities (NYSE: ALLYPrA), which closed up 3 cents to $25.59.

The Ally paper was a penny lower in early trading, at $25.55.

Entergy Arkansas Inc.’s 4.875% $25-par first mortgage bonds due 2066 (NYSE: EAI) were also somewhat active, given the overall muted liquidity.

The Entergy notes rose 7 cents to $23.24.

Wells Fargo & Co.’s 6.625% series R fixed-to-floating rate noncumulative preferreds (NYSE: WFCPrR) made the day’s active list as well, falling 12 cents to $29.99.

And, Qwest Corp.’s 6.75% $25-par notes due 2057 (NYSE: CTDD) moved up in Friday trading but still fell short of the par threshold.

The notes closed at $24.99. The paper had pushed above par earlier in the week, but soon retreated under that level.

Looking ahead, a trader said that “we could get a couple deals next week,” though he had not heard any specifics as to who the issuers might be.

Fannie reports results

Fannie and Freddie preferreds saw considerably less volume than usual on Friday, even as Fannie reported its quarterly results.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) dipped 18 cents, or 2.67%, to $6.56. Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) slipped a nickel to $6.26.

For the quarter, Fannie posted a profit of $2.8 billion. That compared to a $1.1 billion profit seen the year before.

However, that was lower than the $5 billion profit reported in the fourth quarter of 2016. Fannie said the sequentially weaker numbers were due to the fact that interest rates were stable in the first quarter of 2017, while they had risen in the fourth quarter of 2016.

Fannie’s results came after Freddie posted its own earnings on Tuesday, showing a $2.2 billion profit.

Both agencies will send the profits to the Treasury as a dividend payment.

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