Midday Commentary: Preferreds edge higher on 'debt deal' optimism; BofA flat to higher

By Rebecca Melvin

New York, Oct. 16 - The preferred stock market was buoyed somewhat early Wednesday on optimism that a federal government debt ceiling deal was imminent, a preferred trader said.

"Everything is up a little on the optimism that we are going to get a debt agreement by the end of the day. Everything popped a little bit - the Dow is up 100 points," the trader said.

At the same time, there was a lid on things as market players opted for safety given that the fear of default is not off the table.

Remember, the preferred market dropped by about 15% when U.S. credit was downgraded in August 2011, the trader said, "People would rather be safe than sorry."

Shortly before midday, Bank of America Corp.'s preferred shares were flat to slightly higher after the Charlotte, N.C.-based financial services company reported third-quarter earnings that narrowly missed estimates.

"The Merrill Lynch shares moved up about 3 cents on average," a trader said.

"Bank of America's earnings looked to show a one-time profit that wasn't going to continue through, so we're not seeing them moving too much," the trader said.

Bank of America earnings surged on improved credit, loan growth and record deposit balances, but trading revenue and the U.S. mortgage market were weaker.

Third-quarter profit rose to $2.5 billion, which was up from $340 million in the year-earlier period. But revenue was lower than expected.

Also Citigroup Inc.'s J series preferreds moved up a little bit, and the Morgan Stanley & Co. E series preferreds were also a little higher early Wednesday.

On Tuesday, Citigroup's preferreds were mixed after the bank reported a $3.2 billion profit for the third quarter. On Wednesday, the Citigroup 7.875% fixed-to-floating rate trust preferreds (NYSE: CPN) rose 6 cents to $27.42.

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