Market Close: New York Water Secondary Follows Primary

Light primary activity was echoed in the secondary on Monday as traders waited to burn calories on the larger deals slated for later this week. Traders expected a bulk of this week's secondary activity to come later in the week, stemming from deals closing in the primary as fund managers make room in their portfolios for new positions.

Among the day's most heavily traded securities were the New York City Municipal Water Financing Authority maturities, specifically in the intermediate duration range, according to traders. The activity probably came from existing holders making room for the $225 New York City Water deal, which opened up its retail order period on Monday.

"The order period is going very well," said a Midwest trader close to the deal. "Some people might be selling bonds to make room for [this] new issue." The trader noted that only three maturities were available for retail order - 2028, 2029, and 2036 - and the 28s and 29s were receiving the most demand.

The order period will open up for institutional buyers on Tuesday. The revenue bonds are rated Aa2 by Moody's and AA-plus by S&P and Fitch and Rice Financial Products is the managing underwriter, according to data from Bloomberg. Pricing information was not immediately available.

Thanks to consistent inflows, municipal funds have become saturated, meaning that in order to purchase new debt, fund managers must sell existing holdings first. Because of this dynamic, traders have noticed that a bulk of secondary activity has followed that of the primary with, for example, investors selling New York Water debt once a new New York Water deal comes to market.

"The secondary activity you see now all follows primary activity - so if there's no primary, there's no secondary," said a trader based in New York.

The New York Water and Sewer System 5s of 2034 strengthened today to 3.24% from 3.25%, according to data provided by Markit.

Elsewhere in the primary market, no deals over $100 priced either in the competitive or negotatied markets, according to data provided by Ipreo.

Meanwhile, the light secondary activity was mixed. Yields on the Golden State Tobacco revenue bonds 5s of 2033 strengthened four basis points during trading on Monday, falling to 6.67% from 6.71%, according to data provided by Markit. Yields on the commonwealth of Puerto Rico's public improvement refunding 5s of 2041 weakened two basis points, climbing to 7.28% from 7.26%, according to Markit.

SLUGGISH SCALES

Without the volume in the primary or secondary, the municipal scales remained relatively flat from Friday's market close. The Municipal Market Data's triple-A 5% scale was entirely unchanged across the curve on Monday, according to data provided by TM3.

The Municipal Market Advisors' triple-A 5% scale was largely steady as well, with the two-year and 30-year flat at 0.31% and 3.37% respectively. The 10-year was weakened a single basis point to 2.23%.

Traders expected more movement in the scales once the week's larger deals come to market. The week's primary calendar is scheduled to be the largest in three months, with $6.02 billion slated to price, according to data collected by Ipreo and The Bond Buyer. This week's volume is up nearly 75% from last week's revised calendar of $3.46 billion.

A $481 million San Francisco Airport Commission sale, the week's largest deal, will probably kick off that activity on Tuesday when it's scheduled for pricing by JPMorgan Securities LLC.

The structure includes serial bonds maturing from 2029 to 2034 and a 2044 term bond in the larger series, with an additional series each containing a single 2044 term bond. All are rated A1 by Moody's Investors Service, and A-plus by Standard & Poor's and Fitch Ratings.

TREASURY TROUBLE

Treasuries reeled back on Monday after falling in reaction to a Presidential address regarding the country's plan of action surrounding Islamic extremists. On Friday the 10- and 30-year both rose seven basis point to 2.54% and 3.34%, respectively, while the two-year note fell two basis points to 0.56% compared to Thursday's market close.

Some of that weakness evaporated over the weekend and into trading on Monday. The two-year strengthened four basis points to 0.54% from Friday's close, while the 10-year tightened three basis points to 2.59%. The 30-year held steady at 3.35%.

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