Citigroup preferreds free to trade; new jobs figures increase chance of December rate hike

By Stephanie N. Rotondo

Seattle, Nov. 6 – The latest jobs number was “much stronger than expected,” a preferred stock trader said Friday, increasing the likelihood of an interest rate increase in December.

The trader said the buzz was that there was a 70% chance of a hike in the coming month.

In October, nonfarm payrolls increased by 271,000, the biggest gain in nearly a year. Unemployment meantime dipped to 5% from 5.1% previously. Those figures, coupled with a strong dollar and declining oil, have many market players thinking that a rate increase is imminent, especially if the data stays strong in the coming weeks.

In response, the preferred stock market was experiencing “a decent sell-off, but not much.”

The Wells Fargo Hybrid and Preferred Securities index closed down 52 basis points.

Despite the hefty decline, a market source said preferreds were ‘still better than the Treasury market.

“It outperformed by a lot actually,” he said.

The trader noted that recently priced issues that had been performing well – such as the Southern Co.’s 6.25% $5-par series 2015A junior subordinated notes due 2075 (NYSE: SOJA) – were tightening in the wake of the latest economic data.

The notes were off 54 cents, or 2.06%, at $25.66. The paper had been trading well over $26.00.

Citigroup Inc.’s $1.5 billion of 6.125% $1,000-par series R fixed-to-floating rate noncumulative perpetual preferreds – a deal priced Thursday – were meantime seen holding in at 100.375 bid, 100.5 offered early in the session. However, a source noted that the paper “ended up getting hammered at the end of the day,” falling to 100.375.

The source added that the volume weighted average price was 100.625 and that “higher-volume trades” took place in a 100.875 to 101 context.

The issue freed to trade early in the session, according to a trader.

As for Citi’s $25-par preferreds, the 6.875% series K fixed-to-floating rate noncumulative preferreds (NYSE: CPK) dropped 24.12 cents to $26.9588, while the 7.875% fixed-to-floating rate trust preferred securities (NYSE: CPN) lost 6 cents, closing at $25.45.

Looking ahead, a trader said the possibility of the Federal Reserve raising interest rates sooner than later “hopefully will inspire some bankers to bring some new issues in the next few weeks.”

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