Preferreds firm as rate increase seen put off; UMH talk revealed; Fannie, Freddie gain

By Stephanie N. Rotondo

Phoenix, Oct. 6 – Preferred stocks were rising again in Tuesday trading.

The Wells Fargo Hybrid and Preferred Securities index finished up 12 basis points. The index was up 6 bps at mid-morning.

Chatter continued that the Federal Reserve would push out its interest rate increase, though some have even begun to speculate that another round of quantitative easing may be in order. In either scenario, Morgan Stanley analyst Matthew Hornbach said the strategy would be the same: “get long the belly of the yield curve.”

Hornbach made those comments in a U.S. Governments Strategy Brief released on Tuesday.

A trader remarked that should those events prove true, “it could help our market.”

Despite the positive tone of the market, a source said volume among paying securities was limited. Trading in GSE preferreds, however, was “very active.”

In the primary, UMH Properties Inc. announced a $50 million offering of series B cumulative redeemable preferreds late Monday. Come Tuesday, price talk on the deal emerged in a 7.375% to 7.5% context.

“Good luck with that,” a trader quipped.

The trader said he hadn’t seen markets for the paper, though he added that the company’s existing 8.25% series A cumulative redeemable preferreds become callable in 2016. At current prices, he said that issue has a yield of 8.14%, with a yield to call around 5%.

The preferreds (NYSE: UMHPA) ended a penny higher at $25.69, though the paper was seen slipping 6 cents to $25.62 in early trading.

The new issue had not priced as of 6 p.m. ET.

Meanwhile, the Southern Co.’s now $1 billion of 6.25% $25-par series 2015A junior subordinated notes due 2075 – a deal that came Thursday – were “moving up nicely,” according to a trader. That trader pegged the notes at $24.92 bid, $24.95 offered at mid-morning.

At the close, market source said the issue closed at par, though the volume weighted average price was $24.96.

“Clearly, there is a pattern that you can tell, it’s the underwriter supporting the deal,” the source opined.

The $125 million greenshoe on the deal was fully exercised on Tuesday, according to a market source, lifting total issuance from $875 million.

TravelCenters of America LLC’s $100 million of 8% $25-par senior notes due 2030 – a deal priced Wednesday – were meantime seen rising to a $24.70 to $24.75 context in early trades.

The paper ended the session closer to the high end of that range, according to a trader.

Fannie, Freddie firm

Fannie Mae and Freddie Mac preferreds were “very active because of this conference that was held in Washington,” a market source reported.

The source was speaking about two panels hosted by the Bipartisan Policy Center on GSE reform, in which senators Bob Corker and Mark Warner spoke about the need for such actions.

Seven years after the government took Fannie and Freddie into conservatorship, little has been addressed in terms of GSE or housing reform. Both Corker and Warner have tried to speed up the process, introducing legislation aimed at doing exactly that.

Still, it’s been an uphill battle.

“Two things we didn’t fully appreciate in drafting housing policy: One is the strong belief in the House that we ought to get government completely out of the backstop role,” Warner said during his part of a keynote panel address. “On my side, some of the reluctance came from the progressive groups, thinking the status quo was better than some of the (solutions being considered.)”

Corker went so far as to say that it’s unlikely any action would be taken in the next year and a half – that is, until elections are over.

“There’s a small consensus that think it is positive to have this issue out front,” a market source said of the investors that might have had a hand in pushing up the GSEs preferreds. Still, the bill introduced by Corker and Warner “ends badly for GSE guys,” as it would ultimately lead to a liquidation of the agencies – and likely without any recovery for preferred holders.

Still, the shares ended with a positive tone.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) moved up 26.5 cents, or 5.5%, to $5.08, while the 8.25% series T noncumulative preferreds (OTCBB: FNMAT) gained 22 cents, or 3.2%, to close at $7.25.

Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) improved 36 cents, or 7.56%, to $5.12.

PNC pops

The PNC Financial Services Group Inc.’s 6.125% series P fixed-to-floating rate noncumulative preferreds (NYSE: PNCPP) were up sizably Tuesday, though a source said there was “no news” to act as a catalyst.

The preferreds ended up 21 cents at $27.68.

The source did note that “obviously we are getting close to bank earnings,” which could be positively impacting the preferreds.

The source also said that the preferreds experienced “a slow, steady climb throughout the course of the day.”

The company’s common stock (NYSE: PNC), however, did not fare as well.

Those shares closed off 64 cents at $89.95.

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