Morning Commentary: Preferreds get a boost; Southern Co., Morgan Stanley move higher; Bluerock up

By Christine Van Dusen

Atlanta, Oct. 23 – Investors in the preferred stock market were snapping up excess new issues, sending the preferreds inching higher on Friday after the delay in the two-year Treasury auction.

“They postponed the two-year Treasury auction for two weeks to cause the least disruption, because of the debt ceiling,” a trader said. “Because of that, people are picking up excess issues from other auctions. The long bond down a point, but with our stuff, people are just reaching for the yield. Also the comments about whether we'd see a rate hike in December, people are coming into the secondary market and lifting what they think are cheap preferreds.”

Southern Co.’s $1 billion of 6.25% $25-par series 2015A junior subordinated notes due 2075 (NYSE: SOJA) were up 5 cents to $25.98 on 305,031 shares traded by Friday morning, he said.

Losing some steam were Fannie Mae and Freddie Mac, after the market digested the news that the White House had declined to release the mortgage companies from government control.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were seen Friday at $4.75, up a penny. The 8.25% series T noncumulative preferreds (OTCBB: FNMAT) moved to $6.91, down 4 cents.

Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were seen Friday at $4.77, down 3 cents.

Investors also kept track of the banks following the recent release of third-quarter earnings from names like Morgan Stanley. The bank reported a 15% decline in trading revenue and lower-than-expected overall earnings.

The bank’s depository preferred shares, series G, (MS.PG) finished the week up at about $26.91, up 8 cents.

Targa trades down

In other trading, Houston-based Targa Resources Partners’ 9% fixed-to-floating rate cumulative redeemable preferred units (NGLS.PA) started out the week at $25.00 to $25.10 and ended it at about $24.95.

An additional $15 million of the units were sold via Morgan Stanley & Co. LLC, BofA Merrill Lynch, UBS Securities LLC and Wells Fargo Securities LLC. Added to the $110 million initially sold on Oct. 7, total issuance comes to $125 million.

The over-allotment option allowed for up to $16.5 million additional units to be sold.

Bluerock sees little action

The new issue from Bluerock Residential Growth REIT – $62.5 million 8.25% series A cumulative redeemable perpetual preferred stock (BRGPA) that priced last week at $25.00 per share – was seen at $24.85 bid on Tuesday morning and opened Friday between $25.35 and $25.52, a trader said.

“Things are moving up as people are just snapping up all the excess new issues,” a trader said on Friday.

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