Preferreds rebound; HSBC capital securities up, AGNC unscathed by sell-off

By Abigail W. Adams

Portland, Me., Feb. 7 – After a tumultuous start to the week, preferreds were up during Wednesday’s session as broader equity markets continued to be volatile.

The U.S. iShares Preferred Stock ETF underwent a significant sell-off like everything else in recent days, which has put pressure on the market, in particular non-rated preferreds, a market source said.

The market is repricing itself, “and the million dollar question is how do you value a value when you reprice the market,” the source said.

HSBC Holdings plc’s 8% perpetual capital securities exchangeable at the issuer’s option into non-cumulative preference shares, series 2, were up in active trading Wednesday. The capital securities are callable and have been for some time.

The active trading of the 8% securities can be traced to General Electric Co.’s decision to call two of its baby bonds, a market source said. The securities are trading at a premium and a call would be a negative for holders.

Activity surrounding GE’s outstanding 4.7% notes due 2053 has tempered since last week when GE called its 4.875% notes due 2052 and 4.875% notes due 2053. However, the 4.7% notes, which trade under the ticker “GEK,” continued to make gains.

AGNC Investment Corp.’s depositary shares representing 7% series C fixed-to-floating rate cumulative redeemable preferred stock were up in high volume trading on Wednesday.

The depositary shares emerged from the sell-off relatively unscathed, a market source said.

The pressure

The Wells Fargo Hybrid & Preferred Securities Financial index was up 9.85 points and the U.S. iShares Preferred Stock ETF was up 0.46% early in Wednesday’s session.

While neither were able to hold onto their early gains, both ended Wednesday in the positive.

The Wells Fargo Hybrid & Preferred Securities Financial index closed Wednesday up 6.6675 points. The U.S. iShares Preferred Stock ETF closed Wednesday up 22%.

The market sell-off has put “significant pressure” on non-rated preferreds with most trading down 25 cents to $2 below their par of $25 issue price, a market source said.

There is a lot more selling with people also looking for the right opportunity to buy, the source said.

The call

HSBC Holdings’ 8% perpetual exchangeable capital securities, which trade under the ticker “HSEB,” were up in high volume trading on Wednesday.

The securities were up 30 cents, or 1.13%, to $26.80. The 8% securities have been callable at the liquidation preference of $25 since 2015. The high volume trading can be attributed to GE’s decision to call two of its baby bonds last week.

The call of GE’s 4.875% notes due 2052 and 4.875% notes due 2053 “came out of left field,” and took many by surprise, a source said. Holders of HSBC’s 8% securities may have concern they too will be called, the source said.

Trading activity surrounding GE’s outstanding 4.7% baby bond has tempered since last week when the call news sent the 4.7% notes soaring.

However, GE’s 4.7% baby bond continued to make gains during Wednesday’s session. The notes were up 2 cents, or 0.08%, to $24.85 at the market close.

AGNC unscathed

AGNC Investment’s depositary shares representing 7% series C fixed-to-floating rate cumulative redeemable preferred stock were also up in high volume trading on Wednesday.

The depositary shares were up 10 cents, or 0.40%, to $25.50 early in the session. While unable to hold onto their early gains, the notes still ended in the positive. The depositary shares closed Wednesday up 5 cents, or 0.20%, to $25.45.

The depositary shares, which trade under the ticker “AGNCN,” saw nearly double their three-month average trading volume on Wednesday.

The depositary shares saw about 121,000 in play on Wednesday compared to their three-month average volume of 65,000.

The depositary shares emerged from the sell-off relatively unscathed. “This one wasn’t beaten up at all,” a source said.

There are several years left before the fixed dividend on the depositary shares starts to float, which is an extra cushion for investors, the source said.

AGNC’s depositary shares representing the company’s 7.75% series B preferred stock were also up, although they did not attract as much trading action as its peer.

The depositary shares were up 4 cents, or 0.16%, to $25.58 at the market close Wednesday.

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