Preferred stocks strong going into weekend; S&P rebalance in focus; Fannie, Freddie gain

By Stephanie N. Rotondo

Seattle, April 21 – The preferred stock market was looking to hold on to its gains in Friday trading.

The Wells Fargo Hybrid and Preferred Securities index finished 24 basis points better. The U.S. iShares Preferred Stock ETF improved 21 bps.

Investors were keeping an eye on the iShares ETF on Friday, given that a rebalance of the S&P U.S. Preferred Stock index was slated to occur after the day’s close.

The index is adding 12 issues and removing seven.

“The big issue in the market is the volatility as the [S&P index] rebalances after the close,” a market source said.

Sure enough, issues that were being added to the index saw the most trading during the final session of the week.

Morgan Stanley & Co. Inc.’s 5.85% series K fixed-to-floating rate noncumulative preferreds (NYSE: MSPrK) traded nearly 6.64 million times, though it ended unchanged at $26.35. New York Community Bancorp Inc.’s 6.375% series A fixed-to-floating rate noncumulative preferreds (NYSE: NYCBPrA) were next up, trading about 3.61 million times.

Those preferreds closed up 13 cents at $27.73.

Chimera Investment Corp.’s 8% series A cumulative redeemable preferreds (NYSE: CIMPrA) were also joining the index. That issue gained 16 cents to close at $25.46. The paper changed hands 2.02 million times.

Apollo Global Management LLC’s 6.375% series A noncumulative preferreds (NYSE: APOPrA) were in the mix, trading 1.65 million times during the day. The preferreds firmed 17 cents to $25.30.

And, Two Harbors Investment Corp.’s 8.125% series A fixed-to-floating rate cumulative redeemable preferreds (NYSE: TWOPrA) rose 40 cents, or 1.54%, to $26.44, as it was also added to the index.

That issue was the least traded of the index’s joiners, being exchanged almost 800,000 times.

Looking to the coming week, the new issue market is expected to see at least one deal hitting the tape.

“I’m hearing a deal on Tuesday,” a trader said, though he had no specifics.

Of the current week’s deals, American Homes 4 Rent’s $150 million of 5.875% series F cumulative redeemable preferreds were given a temporary trading symbol on Friday, “AMHTP.”

The deal priced Wednesday and freed to trade on Thursday.

Paper ended at $24.72 for the day. The issue was trading in a $24.77 to $24.85 context at mid-morning, according to one trader.

Qwest Corp.’s $575 million of 6.75% $25-par notes due 2057 – a deal priced Tuesday and freed to trade on Wednesday – were meantime seen closing at $25.06, though the issue was quoted at $24.77 bid, $24.80 offered earlier in the day.

And, Wells Fargo & Co.’s $600 million issue of 5.625% series Y class A noncumulative preferreds were pegged at $25.07 bid, $25.12 offered at mid-morning, though they ended at $25.10, up 2 cents.

That issue came Monday, upsized from $250 million and tighter than the 5.875% price talk. The deal then freed to trade on Tuesday and was also assigned a temporary trading symbol, “WFGGP.”

Fannie, Freddie firm

Fannie Mae and Freddie Mac preferreds followed in line with the market on Friday, ending with a firm tone as investors once again saw their hopes of housing reform growing.

Fannie’s 8.25% series T noncumulative preferreds (OTCBB: FNMAT) gained 44 cents, or 6.77%, to close at $6.94, while the 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) moved up 30 cents, or 4.5%, to $6.97.

Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) rose 27 cents, or 4.38% to $6.44.

The upward momentum came after Treasury secretary Steven Mnuchin reiterated on Thursday that housing reform was a top priority for the current administration.

Also on Thursday, the Mortgage Bankers Association released the final draft of its proposal to turn the GSEs into shareholder-owned utilities. Though the venture would eventually require $200 billion in private capital, the government would continue to backstop the mortgage-backed securities that the agencies buy.

However, the plan, in theory, would not leave taxpayers on the hook in the case of another financial crisis.

It should also be noted that the plan does not outline how current shareholders would be treated, should it be implemented.

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