Preferred stocks rebound by day’s end, still weak for session; bank paper follows trend

By Stephanie N. Rotondo

Phoenix, May 18 – The preferred stock market started the week with a negative tone, though it did experience a rebound intraday.

The Wells Fargo Hybrid and Preferred Securities index closed off 9 basis points. However, that was better than the 25 bps loss seen at mid-morning.

“Everything is mostly red,” a market source said, though he added that overall, “volume was really, really light.”

The broader markets were also initially coming in as the market’s concerns about a Greek default ramped up. A strengthening dollar and declining Treasuries were also playing a role. But even those markets improved throughout the day.

One theory for the day’s rebound was that a round of weak economic data – something that was also weighing on the market in early trading – might have an upside in that it would encourage the Federal Reserve to put off any looming interest rate hikes.

One trader said that the primary preferred space would likely be on the quiet side this week, given the upcoming Memorial Day holiday. Investors might also be sitting back and waiting ahead of the release of the minutes from the Federal Reserve’s April meeting.

The minutes are scheduled to be released on Wednesday.

Another source, however, said he was hearing rumors of a dollar-denominated $25-par issue from a Scandinavian bank.

“But that could be weeks away,” he speculated.

Banks come in

A market source noted on Monday that Moody’s Investors Service’s plan to change its methodology on how it rates bank preferreds went into effect on Thursday.

The changes were first announced in March.

As a result of the new process, most U.S. bank preferreds saw their rating improving – in some cases back into investment grade.

While the upgrade is widely viewed as a positive, U.S. banks performed poorly on Monday, in light of the broader market’s issues.

Morgan Stanley & Co. Inc.’s 6.625% series G noncumulative preferreds (NYSE: MSPG) were down 12 cents at $25.89. With about 366,000 shares trading during the session, the issue was the most actively traded paying security for the day.

Wells Fargo & Co. was also among the day’s busiest preferreds. Its 6.625% class A series R fixed-to-floating rate noncumulative preferreds (NYSE: WFCPR) lost a dime to $27.95, while the 5.85% series Q fixed-to-floating rate noncumulative perpetual preferreds (NYSE: WFCPQ) dropped 6 cents to $26.04.

JPMorgan Chase & Co.’s 6.125% series Y noncumulative preferreds (NYSE: JPMPF) held up better than some, declining just 4 cents to $25.61.

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