Preferred stock market finishes firm; Freddie, Fannie weaken; recent issues remain active

By Stephanie N. Rotondo

Seattle, May 2 – Preferred stocks were trending downward early Tuesday but recovered later in the day as the market prepared for results from the Federal Reserve’s latest policy meeting.

The meeting will go until Wednesday. It is largely expected that interest rates will hold steady, though there are some concerns that the central bank may opt to cut its forecast for the remainder of the year.

The Wells Fargo Hybrid and Preferred Securities index ended the day 22 basis points better, though it was off 1 bp at mid-morning. The U.S. iShares Preferred Stock ETF rose 8 bps, after being down 15 bps earlier in the day.

In fact, the ETF was trading in negative territory for most of the day.

Freddie Mac reported earnings ahead of the session’s open, swinging to a profit from the previous year.

However, Freddie’s preferreds, as well as those of sector peer Fannie Mae, traded lower.

One market source opined that it was statements made by Treasury secretary Steve Mnuchin that were to blame for the weakness.

Meanwhile, recently priced issues continued to be on the active side – though overall liquidity was on the lighter side, given the Fed meeting.

Qwest Corp.’s 6.75% $25-par notes due 2057 (NYSE: CTDD) were the top trader of the day, even beating out the GSE preferreds.

The notes rose 7 cents to $25.07, moving over the par threshold for the first time since listing.

Wells Fargo & Co.’s 5.625% series Y class A noncumulative preferreds (NYSE: WFCPrY) were also eyed. Like Qwest, they moved up, adding 9 cents to trade at $25.08.

As for NuStar Energy LP’s $350 million of 7.625% series B fixed-to-floating rate cumulative redeemable perpetual preferred units, they were on the rise, with one trader pegging the paper in a $25.32 to $25.42 context.

The issue closed at $25.40, up 2 cents.

The deal came April 25 and is trading under a temporary ticker, “NUSRP.” The units are expected to list on the New York Stock Exchange on Wednesday under the symbol “NSPrB.”

Freddie swings to profit

Freddie reported first-quarter results on Monday, and while the agency posted a profit, the GSE’s preferreds were losing ground.

The 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) declined 30 cents, or 4.13%, to $6.96.

Sector peer Fannie was also weakening. Its 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) lost 55 cents, or 7.13%, to close at $7.10.

For the quarter, Freddie reported a $2.2 billion profit – all of which will be paid forward to the Treasury as a dividend payment.

For its part, Fannie will report its first-quarter results on Friday.

But a market source opined that it was comments from Mnuchin that “confused matters.”

On Monday, Mnuchin reiterated that reforming the GSEs was a top priority, with a plan expected to come forth later this year or early next.

But Mnuchin also said that he did not believe that the agencies’ dividend payments should be suspended, likely letting down advocates who say Fannie and Freddie should stop making such payments in order to build up a capital buffer.

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