Activity in GSEs picks up as Senate, Watt look toward reform; Capitala notes free to trade

By Stephanie N. Rotondo

Seattle, May 11 – GSE-linked preferred stocks were back on center stage on Thursday, following a Wall Street Journal report that the Senate Banking Committee was kicking off a revamp effort.

Additionally, Mel Watt, head of the Federal Housing Finance Agency, addressed the committee on Thursday, stating that the mortgage agencies’ inability to retain its profits was not a sustainable practice and that Congress needed to act quickly on housing finance reform.

The news appeared to excite investors, and Fannie Mae and Freddie Mac preferreds were not only active in trading, but better too.

Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) were up 57 cents, or 8.73%, at $7.10 on more than 2.1 million trades. The variable-rate series O noncumulative preferreds (OTCBB: FNMFN) were up 90 cents, or 8.11%, at $12.00.

About 2 million of those preferreds changed hands.

Freddie’s 8.375% fixed-to-floating rate noncumulative preferreds (OTCBB: FMCKJ) were meantime up 56 cents, or 8.89%, at $6.84. Approximately 1.7 million of the preferreds were exchanged.

As for the week’s new issues, Capitala Finance Corp.’s $70 million of 6% $25-par notes due 2022 freed to trade by the end of the day.

Toward the end of the day, a source quoted the notes at $24.96 bid, $25.03 offered.

Earlier in the session, a trader quoted the issue at $24.90 bid, par offered. Another saw the notes in a $24.88 to $24.97 context.

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