Investors snapped up trust-preferred securities last week after a rumor rumbled through the market that Congress may soon eliminate the novel securities.

Spreads on the issues tightened by 10 basis points on Thursday afternoon and held strong into late market trading on Friday.

But many observers were skeptical of the rumor, noting that Congress adjourned in mid-November and won't reconvene until late January.

"This sounds like a made-up story to push the market up," said bank bond analyst Allerton J. Smith of Donaldson Lufkin Jenrette Securities. "We have seen no indication that the Treasury Department plans to reintroduce legislation that curtails trust-preferred issuance."

The biggest holders of the securities include Goldman Sachs & Co., which helped engineer the product; Morgan Stanley & Co.; and Fidelity Investments.

Either way, the securities retain worth, said Joseph Labriola, head of corporate bond research at PaineWebber Inc. "If the window is shut the securities offer value, if it remains open, they are still valuable although not as much so." - Tania Padgett

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