Preferreds tick higher after Yellen comments; Torchmark notes free up; Gabelli hits par

By Stephanie N. Rotondo

Seattle, March 30 – Preferred stocks continued to be firm in midweek trading on Wednesday, extending the gains seen at the start of the week and furthered by the Federal Reserve chairman on Tuesday.

The Wells Fargo Hybrid and Preferred Securities index closed up 14 basis points, which was down a touch from the mid-morning gain of 17 bps.

On Tuesday, Federal Reserve chairman Janet Yellen said the central bank would exercise caution when opting to raise interest rates in the future, taking into account not only domestic economic data, but global headwinds as well.

A trader said that in the wake of her comments, the likelihood of an April increase went from 11% to 4%. As a result, “people rushed back in” to the markets, pushing them higher.

But even as the markets have gotten a bump, the trader also remarked that the primary preferred stock space would likely be muted for the remainder of the week.

“There are no more deals this week, I was told,” he said. With it being month-end and Spring Break in some places, “everybody is taking a break.”

Of the deals already priced this week, Torchmark Corp.’s $300 million of 6.125% $25-par junior subordinated debentures due 2056 had freed up by mid-morning, according to a trader.

The new notes ended at $25.14, according to a market source, which was off a touch from earlier quotes of $25.15 bid, $25.22 offered.

The deal came upsized from $150 million and tight to the 6.25% price talk.

BofA Merrill Lynch, Morgan Stanley & Co. LLC and Wells Fargo Securities LLC ran the books.

Meanwhile, the Gabelli Equity Trust Inc.’s $80 million of 5.45% series J cumulative redeemable preferreds – a deal priced Monday and freed Tuesday afternoon – were hanging in a $24.90 to $24.95 range early in the session, only to push up to par by the close.

UBS Securities LLC and Wells Fargo led that deal.

Fannie, Freddie busy

Fannie Mae and Freddie Mac preferreds were trading actively on Wednesday, though the securities were mixed for the day.

Freddie’s 8.375% fixed-to-floating rate noncumulative perpetual preferreds (OTCBB: FMCKJ) were steady at $2.98, while Fannie’s 8.25% series S fixed-to-floating rate noncumulative preferreds (OTCBB: FNMAS) added a nickel, or 1.7%, to close at $2.99.

A market source said he wasn’t sure what was causing the uptick in activity, though he added “if I had to pick a story/headline, it would be” an article published in Bloomberg citing Rafferty Capital’s Richard Bove.

In the article, Bove said that the GSEs were in a “woeful financial situation,” which could force the government to move “sooner rather than later” on housing reform, before a “catastrophe” hits.

Housing reform has struggled to gain traction in Congress, which has not been good for Freddie and Fannie stakeholders hoping to recoup some of their investments. Furthermore, the government’s 2012 “net worth sweep” of the GSEs’ profits has resulted in weak liquidity cushions for the mortgage backers, causing more concern among shareholders.

A bevy of lawsuits have been filed fighting the profit sweep, alleging that the government acted outside its purview as conservators.

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