Preferreds underperform Treasuries; Cherry Hill’s inaugural issue hits NYSE; U.S. Bancorp busy

By Stephanie N. Rotondo

Seattle, Aug. 23 – The preferred stock market “significantly” underperformed the Treasury market on Wednesday, a market source said.

“Our excess return was significantly negative for the day,” the source said.

Market indicators were little moved on the day, however, even as the equity market waned on concerns about a possible government shutdown. Volume also remained thin.

The Wells Fargo Hybrid and Preferred Securities Index was flat on the day while the U.S. iShares Preferred Stock ETF ticked up 3 basis points.

In a rally in Phoenix on Tuesday, president Donald Trump threatened a government shutdown if an upcoming spending bill did not include funds for a border wall.

But with little market-specific news to help move the preferred space around, one of the most notable events in midweek trading was Cherry Hill Mortgage Investment Corp.’s admittance to the New York Stock Exchange.

The company’s $55 million issue of 8.2% series A cumulative redeemable preferreds listed on the exchange under the ticker symbol “CHMIPrA.”

The paper was trading at $25.10 at the end of business, a loss of 15 cents.

The Moorestown, N.J.-based real estate investment trust brought its inaugural preferred stock deal to market on Aug. 10.

Morgan Stanley & Co. LLC and RBC Capital Markets LLC ran the books.

The day’s most actively traded issue was U.S. Bancorp’s 6.5% series F fixed-to-floating rate noncumulative preferreds (NYSE: USBPrM) with a $25 par value.

The issue ended the day off 15 cents at $28.95, with about 1.33 million shares being exchanged.

“I think that was largely tied to an arbitrage that went on between the $25-pars and the $1,000-pars,” a source said. “People were selling the $25-par and buying the $1,000-par.”

He noted that $1,000-par paper tends to be cheaper, “as a general rule.” He noted that the disparity between the sides was enough that it was “a good idea to take advantage” of the situation.

But after the U.S. Bancorp issue, liquidity dropped off considerably. In fact, the next most active issue was AGNC Investment Corp.’s $300 million of 7% series C fixed-to-floating rate cumulative redeemable preferred stock – a deal priced on Aug. 15 – which traded almost 236,400 times.

The preferreds were seen firming 6 cents to $25.07.

The issue has a temporary symbol, “AGNNP.”

Morgan Stanley, BofA Merrill Lynch, UBS Securities LLC, J.P. Morgan Securities LLC, RBC Capital Markets and Keefe Bruyette & Woods Inc. were the bookrunners.

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