Morning Commentary: Preferred stocks tank as broad markets sell off; new issues ‘hammered’

By Stephanie N. Rotondo

Phoenix, Aug. 24 – The preferred stock market was taking a beating as the broader markets sold amid continued global economic concerns and yet another major decline in oil.

The Dow Jones industrial average was down nearly 4% ahead of the noon hour, which was better than the intraday lows. Oil prices were off more than 4.5%, trading at less than $39 per barrel.

The Wells Fargo Hybrid and Preferred Securities index was meantime down 1.3%, or 130 basis points.

“New issues got hammered,” a trader said.

Capital One Financial Corp.’s $500 million of 6.2% fixed-rate series F noncumulative preferreds – another deal priced Aug. 17 – were down a quarter, or 1.01%, at $24.55. National General Holdings Corp.’s $100 million of 7.625% $25-par subordinated notes due Sept. 15, 2055 (Nasdaq: NGHCZ) were also weakening, falling 57 cents, or 2.4%, to $23.28.

The latter issue came Aug. 11.

But Southern California Edison Co.’s SCE Trust IV’s $325 million of 5.375% fixed-to-floating rate trust preference securities – another deal from Aug. 17 – were inching up, trading 3 cents higher at $25.40.

“Some stuff is just way out of whack,” a trader said. “As money flows out of these funds” – the iShares U.S. Preferred Stock Index (NYSE: PFF) dropped to as low as a $32 handle, down from its typical levels around $39, in early trading – “people have to figure out what to sell to get cash.”

The trader noted that bigger issues would likely feel the most burn, while fixed-to-floating issues would hold up a little better.

Still, the weakness in the market – which has been raging since last week – has caused some to opine that an interest rate hike from the Federal Reserve will be pushed off until December.

“There’s no real reason to raise rates now, except to just raise rates,” the trader said.

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