Market Post: NYC Water Looks Expensive; Market Softer

The New York City Municipal Water Finance Authority kicked off what could be one of the larger primary calendar weeks in 2013 with a retail order period Monday.

Ramirez & Co. priced for retail $519.6 million of the NYC water and sewer system second general resolution revenue bonds, rated Aa2 by Moody's Investors Service and AA-plus by Standard & Poor's and Fitch Ratings. Institutional pricing is expected Tuesday.

Yields ranged from 3.257% with a 3.125% coupon in 2027 to 3.858% with a 4% coupon in 2038. The bonds are callable at par in 2023. Portions of bonds maturing in 2034, 2035, and 2038 were not offered for retail.

"All eyes are on NYC Water," a New Jersey trader said. "The shorter maturities look OK on the 2027 to 2034 maturities. But the 4% coupons are pricey compared to the water bonds trading in the secondary."

He added that 4s of 2047 had a bid of 3.95% in the secondary Monday, 83 basis points over the Municipal Market Data scale. In the primary Monday, 4s of 2035 yielded 3.58%, or only 75 basis points over the scale. "Those should probably be trading in the 85-basis-point range, so they are going to have to cut tomorrow."

This trader continued that the 3% coupons look better.

Outside the primary deal, the market feels softer, the trader said. "The market is getting sloppy. It was opening up slow and felt like a typical Monday after a weekend with the clocks moving and everyone looks groggy. What's left over from the primary market last week is trading down a quarter to half a point in the secondary market. But supply feels heavier and there's not much of a bid side."

On Friday, municipal bond market scales ended weaker for the fifth session.

Yields on the Municipal Market Data triple-A GO scale ended as much as eight basis points higher. The 10-year yield jumped five basis points to 1.99% while the 30-year yield increased six basis points to 3.08%. The two-year closed at 0.31% for the 14th straight session.

Yields on the Municipal Market Advisors 5% coupon triple-A benchmark scale also closed as much as eight basis points higher. The 10-year yield jumped six basis points to 1.99% while the 30-year yield soared seven basis points to 3.15%. The two-year was steady at 0.33% for the ninth session.

Treasuries were steady to stronger Monday afternoon. The two-year and 30-year yields fell one basis point each to 0.26% and 3.25%, respectively. The benchmark 10-year yield was steady at 2.06%.

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