Preferreds pressured, but liquidity light; market seen rich; new issues falter; GSEs mixed

By Stephanie N. Rotondo

Seattle, May 4 – The preferred stock market lost more ground on Thursday, following a steep decline in crude oil prices.

“It creates questions around the creditworthiness of the energy sector and that spreads to all credit concerns,” a market source said.

In fact, the market was giving oil’s drop more weight than the latest initial jobless claim report, which fell to a 17-year low.

The Wells Fargo Hybrid and Preferred Securities index dropped 31 basis points, while the U.S. iShares Preferred Stock ETF declined 28 bps.

Still, a trader said the market was “very quiet.”

“Everyone’s just sitting around, looking for value,” he said.

He noted a CreditSights report that opined that the new issue pipeline from banks was over and done with, unless the issue was being done to call another issue. Fixed-to-floating rate issues in particular could see an uptick in calls, especially if interest rates continue to rise as planned.

The trader further commented that the report confirmed that “everything is rich in the market right now.” As market players look for opportunities, “we could see some selling pressure in the secondary market.”

Recently priced issues were pressured during the session, in line with the market trend.

NuStar Energy LP’s $350 million of 7.625% series B fixed-to-floating rate cumulative redeemable perpetual preferred units (NYSE: NSPrB) lost a dime, closing at $25.18. Qwest Corp.’s 6.75% $25-par notes due 2057 (NYSE: CTDD) also fell a dime, ending at $24.95.

The notes had just started to trade at or above par earlier in the week, though the deal priced April 18.

As for Wells Fargo & Co.’s 5.625% series Y class A noncumulative preferreds (NYSE: WFCPrY), they fell just a penny to $25.04.

“Ironically, the GSE preferreds fared much better than the rest of the preferred market,” a source noted.

Freddie Mac’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) finished the session down 18 cents, or 2.77%, to $6.31.

However, Fannie Mae’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) rose 23 cents, or 3.53%, to $6.74.

Fannie is slated to report earnings on Friday. Freddie brought its first-quarter results on Tuesday, showing a $2.2 billion profit.

The mortgage-backed agency had reported a loss the previous year.

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