Preferreds gain ground as Fed increases rates; Fannie, Freddie resume slide; RBS firms

By Stephanie N. Rotondo

Seattle, Dec. 16 – The preferred stock market ended the midweek session with a positive tone after the Federal Reserve opted to increase interest rates by 25 basis points.

The Wells Fargo Hybrid and Preferred Securities index ended up 69 bps.

A trader said the market was largely expecting the central bank to raise rates by 25 bps upon the conclusion of its two-day policy meeting. But what the market was really looking to was the “follow-on language,” he said – that is, how and when will future rate hikes be handled?

In its statement, the Fed said future hikes would be gradual and would depend on how well the economy was doing.

As for the day’s dealings, Fannie Mae and Freddie Mac paper resumed their sell-off on Wednesday after holding steady on Tuesday. A trader said that the recent weakness in the preferreds could be due to market concerns over the strength of shareholder lawsuits currently pending against the government but that the declines were likely more due to tax-loss selling.

Fannie’s 8.25% series S fixed-to-floating-rate noncumulative preferreds (OTCBB: FNMAS) finished off 6 cents, or 1.71%, at $3.44.

Freddie’s 8.375% fixed-to-floating-rate noncumulative perpetual preferreds (OTCBB: FMCKJ) declined 8 cents, or 2.29%, to $3.42.

Royal Bank of Scotland Group plc preferreds headed into higher territory as it was reported that the Edinburgh-based bank had received takeover offers for its Williams & Glyn banking unit.

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